Academics get the vote in Fed revamp

Lauren Chambliss12 April 2012

WHEN President Bush came to office there were worries on Wall Street he would stack the Federal Reserve's five open seats with iconoclastic economists or colourful Texas business types out of step with the grey suits on Wall Street.

Instead, Bush has shied away from appointing people with hands-on business or financial industry experience, choosing instead Ivory Tower professors with a reputation for deep thinking and academic integrity. The Bank of England's monetary policy committee is more diverse than Bush's Fed in that several of its economists have industry or City backgrounds.

This week Bush is expected to fill two remaining open seats on the seven member Board of Governors with Princeton University economist Ben Bernanke and Fed senior adviser Donald Kohn. Neither appointment will ruffle feathers.

Bernanke is not considered conservative but his academic writings on monetary policy make him one of the country's leading authorities. He has one pet project that might shake things up; he advocates the fixed inflation target zones now in vogue at the European Central Bank and the MPC.

Alan Greenspan has never favoured such an approach, believing it would restrict Fed flexibility. Bernanke, 48, is seen as a possible replacement for Greenspan when the revered 76-year-old leader of the US central bank retires. His tenure is up in two years but there are rumours he may leave earlier if the economy is in good shape.

The other nominee is Kohn, 58, Greenspan's right-hand man at the Fed. Kohn has worked as a senior adviser to the Federal Open Market Committee for more than a decade. He often writes Greenspan's speeches, striking the difficult balance between saying too much and too little and sending the precise, desired message to Wall Street.

It is a measure of the prestige of the FOMC that Kohn would even consider the job because it will involve a huge pay cut. He makes $42,000 (£28,700) more as a staff aide than he would as a board member because the latter salary is set by Congress's rather low pay scale for federal employees. He would also be the first senior Fed staff member to ascend to the board in a quarter of a century.

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