Glenn Hubbard, economic adviser to the Republican presidential candidate, said he would advise a possible President Romney that Bernanke should “get every consideration” to stay on beyond January 2014, when the chairman’s current term expires.
The comments may come as a surprise given Romney has said he would not reappoint Bernanke beyond 2014. Further, many top Republicans have blasted the Fed’s aggressive policies since the Great Recession as overreaching and reckless.
“Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back,” Hubbard said in an interview, adding he has known Bernanke since they were “practically kids” and regularly speaks to him.
“I may or may not agree with him, but that’s very different from saying I question his motives. I wish politicians would stop doing that,” Hubbard told Reuters TV.
Here’s what makes Hubbard’s comments particularly interesting: When it comes to the central bank, the Ron Paul, End the Fed school of thought seems to be ascendant in the GOP right now, especially within the Tea Party wing. And they think not only should Bernanke go, but the Fed right along with him. Hubbard clearly believes in the necessity of a central bank. In fact, Hubbard was mentioned as a possible replacement for Alan Greenspan. (Here’s a video about it.) And if elected, Mitt Romney is not going to push to end the Fed. And I’ve heard that Bernanke doesn’t want four more years.
But, assuming Bernanke wanted to stick around, does he merit another term? Approaching this from a Milton Friedman perspective as opposed to a Ron Paul perspective, the biggest knocks you could make on Bernanke are that a) the Fed was too tight as the economy was rolling over in 2007 and 2008, b) the stop-and-go nature of quantitative easing limited its effectiveness, and c) he has failed to persuasively communicate that the Fed was “all in” in getting nominal GDP back on track.
“The Federal Reserve should provide a conditional commitment that says as long as it is short of its goals it is willing to expand its balance sheet,” Reinhart, a former head of the Fed board’s Division of Monetary Affairs, said today. “What you want to be is conditional, you want to be able to say as long as the economy is not performing relative to what the Congress told you to do, you’ll continue to act.”
The Fed chief should say he recognizes that “the Federal Reserve is failing in both of its goals, maximum employment and stable prices, and that we’ll have an open-ended commitment to expand the balance sheet,” Reinhart said.
Both Hubbard and Romney suggest they disagree with this approach. More from Hubbard:
Hubbard was quick to note his opposition to some Fed policies, including the large-scale bond buying programs known as quantitative easing, or QE. He said a third round of buying (QE3) is unlikely to happen and would have little effect on either the economy or the bruising election campaign.
QE3 would probably only slightly lower Treasury yields, which are already very low, Hubbard said. “I don’t think that’s what the doctor ordered for the recovery,” he said at the Columbia Business School in New York, where he is dean.
And if Bernanke does agree with the Reinhart approach, he may feel politically constrained against pursuing it. That could change if a President Romney were to signal Bernanke that he wanted him to say at the Fed and would provide political cover for a pro-growth monetary policy.
My working assumption has always been that Romney would pick Hubbard to replace Bernanke. Who knows, maybe even starting him out at the White House or heading Treasury, then shifting him over to the Fed.
But the bigger question: What sort of monetary policy does Mitt Romney want, especially if he is serious about sharply cutting government spending?