The Public Face of the Fed Cracks

Is the public face of the Federal Reserve in a shambles? Numerian over at The Agonist certainly seems to feel that way:

How much control of the Fed has Ben Bernanke lost? We have never had a Fed board in living memory that has been so fractious in public. The Fed has always had a party line and governors and presidents are expected to have all speeches cleared in advance to ensure the party line is followed. With this Fed, so many FOMC members have come out in opposition to official policy that you have to wonder if there is a party line left any more. To the extent it revolves around Quantitative Easing, it is in a shambles.

Too bad that's not entirely the case. The existence (or, if you subscribe to this school of thought, appearance) of diverging opinion within Fed ranks lends much-needed credibility to the issues they do fully agree on (like easy money for the last 3 years). It would be a bit suspect if 12 different Fed presidents and the Board, all with differing political positions, views, beliefs, backgrounds and experience were somehow always in agreement on every issue, regardless of the farce that is Fed independence.

Case in point, check out Bloomberg February 2006:

Federal Reserve Vice Chairman Roger Ferguson's resignation may help new Fed chief Ben Bernanke win support at the central bank for a numerical inflation goal.

Ferguson, who quit yesterday effective April 28 after eight years on the Fed's Board of Governors, opposes an inflation target, partly because it may limit the central bank's flexibility. Bernanke's support for such a move has been a hallmark of his work as an economist.

The absence of Ferguson and former Chairman Alan Greenspan removes the two biggest obstacles to a Fed inflation goal, leaving Governor Donald Kohn as the only board member known to disagree with the approach. At least 21 central banks, including those in Canada, the U.K. and Australia, have an inflation aim, and Bernanke told Congress in November that such a strategy would make the Fed more open.

At the time, the media and the Fed-obsessed guessed that this inflation targeting disagreement could have been to blame for Ferguson's departure but a more likely scenario is that Ferguson (a Democrat) got butthurt over Bernanke (an alleged Republican) getting the chair spot.

In fewer words: bitchfighting is nothing new at the Fed, manufactured or otherwise.

I will, however, wholeheartedly agree with The Agonist's point that we're seeing an all-out assault on the Fed's "party line," whatever that might be. The spear-throwing is only a step above cussing each other out in public and I, for one, am thrilled. It may not be making much progress on the economy but hey, it makes for fantastic theater.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.