The Federal Reserve Diet

LONDON – Markets around the world were relieved by the US Senate’s confirmation of Federal Reserve Board Chairman Ben Bernanke’s reappointment. It was the right decision from the perspective of financial stability; change at the top would have thrown in doubt the Fed’s determination to respond decisively to the crisis – and, indeed, its long-term commitment to low inflation.

Bernanke’s performance over the last two years has won high praise, and an extended political fight over control of US monetary policy was the last thing the world needed at what is still a very delicate moment for the global economy.

Nevertheless, 30 senators voted against Bernanke. This may, in part, have just been partisan politics, but Bernanke was appointed by President George W. Bush, and there were other voices, both Democrat and independent, raised against his reappointment.

The case against Bernanke rested partly on his performance before the crisis. Was he not a hard-core member of the “Greenspan consensus,” which held that it was not the Fed’s responsibility to look out for bubbles, whether of asset prices or credit, and that it should limit itself to mopping up after the event?