The American Senate’s recent 70 — 30 vote to give U.S. Federal Reserve chairman Ben Bernanke a second term is good news for the world’s central bankers – and anyone who wants to see more stability in the global economy.
More than a few market watchers were jittery over political calls for Bernanke’s head, because turnover at Uncle Sam’s central bank now, during a critical juncture in the global economy’s recovery attempt, would call into question the ability of the world’s most important financial institution to conduct monetary policy free of political interference. And while Bernanke underestimated the sub-prime fiasco, he is still widely respected.
But don’t breathe a sigh of relief just yet. Former Fed economist Bob Eisenbeis insists central bankers around the world (except, perhaps, at the European Central Bank) are now on a much “tighter leash,” thanks to the financial crisis. And that could compromise economic stability.
Relatively speaking, Bernanke is lucky. Before Argentina’s central banker recently quit, the government used police to block him from getting to work, after courts prevented the politicians from ousting him (over his refusal to let the government use national reserves to pay debt). Last year, Iceland crafted legislation saying its central banker must hold a graduate degree in economics, to get around constitutional issues that blocked the government from picking a new one.
But although Bernanke kept his job, he is now under extreme pressure to make life easier for U.S. consumers. That could affect how he does his real job – keeping inflation in check. Fine-tuning monetary policy is hard enough without throwing political pressure into the mix.