Presidential Election Weighs on the Federal Reserve

English: A frame from a screencast from the US House Financial Committee full committee hearing "An Examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis which took place Tuesday, February 10, 2009, 1:00pm, 2128 Rayburn House Office Building. The frame shows Chairmen Ben Bernanke responding to a question posited by John E. Sweeney Full Committee (Photo credit: Wikipedia)

Washington, Oct.23, stock investing .- The next significant event for monetary policy is not the Federal Reserve's meeting Tuesday and Wednesday, which is likely to pass quietly, but the presidential election two weeks later. Mitt Romney, the Republican nominee, has said that he opposes the Fed’s efforts to stimulate the economy as ineffective and inflationary. And as president, he has promised to appoint a new Fed chairman.

The term of the current chairman,Ben S. Bernanke, runs through early 2014. But the impact could be immediate as investors revise their assumptions about the future.

“I certainly would expect the markets to respond, that they will take this as the Fed being more hawkish and that will be reflected in rates,” said Laurence H. Meyer, senior adviser at Macroeconomic Advisers and a former Fed governor.

Such a reversal would be welcomed by critics who argue that the Fed’s efforts are undermining economic stability, and mourned by supporters who say more must be done to revive economic growth. But Mr. Meyer and others cautioned that the impact would not be fully felt until it becomes clear whom Mr. Romney intends to nominate as a successor to Mr. Bernanke.

A range of experts regard two of Mr. Romney’s economic advisers as the most likely candidates: R. Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, and N. Gregory Mankiw, who followed Mr. Hubbard in that role. John B. Taylor, a Stanford University economics professor and outspoken critic of Fed policy, also is mentioned frequently.

The choice of Professor Taylor — or a like-minded critic — would represent a dramatic step to change the course of monetary policy. By contrast, Professor Mankiw, an economist at Harvard University, and Professor Hubbard, dean of the Columbia University business school, both are seen as centrists.

Professor Mankiw co-wrote a 2011 paper endorsing policies like those the Fed has pursued as the best way for government to enliven the economy. Professor Hubbard told Reuters TV in August that Mr. Bernanke is “a model technocrat” who should get “every consideration” for another term. ... Read more.

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