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Tuesday, October 04, 2005

Governor Kohn as the Next Fed Chair?

The speculation over the next Fed chair is beginning to heat up.  This time the focus is on Federal Reserve Governor Donald Kohn. To me, a factor cited in the article as a weakness, his lack of party affiliation, is a strength:

Kohn, Long Shot for Fed Chief, Helped Shape Greenspan's Views, Bloomberg: ...During his 30 years at the Board of Governors, Kohn ... has attended more policy meetings than any current Fed member. He served as Greenspan's top strategist for 15 years before Bush promoted him to governor in 2002. He embraces much of Greenspan's thinking on financial markets, risk and interest-rate policy. ... [S]ays Robert Parry, former San Francisco Fed Bank president ... ''He was very close to the chairman, and they discussed issues frequently. He and this chairman were really a team.'' Kohn shows up as a long-odds candidate to replace Greenspan in surveys and on betting sites, well behind leader Ben S. Bernanke ... One drawback: Kohn has few visible alliances on Capitol Hill, analysts say. Kohn says he has no party affiliation and declined to be interviewed for this story... ''If you talk to the Fed staff in private and ask them who would Greenspan like to replace him, the answer would be Don Kohn,'' says Roger Kubarych, economic adviser to HVB America Inc. and a former deputy director of research at the New York Fed. ... Under Greenspan, Kohn helped scrap policies that kept financial markets guessing about where the Fed wanted interest rates to go. Following a presentation by Kohn in December 1987, Greenspan urged reluctant policy makers to assign a numerical target to the federal funds rate, the interest charged for overnight loans between banks. Eventually, that figure became the most important signal of Fed policy. ... Because of his close alliance with Greenspan and personal involvement with policy across three decades, Kohn may also be the most resistant to major change, former colleagues say. ... Like Greenspan, Kohn remains a skeptic on the merits of tethering Fed policy to a numerical inflation goal. He favors a discreet approach that allows the Fed to maneuver around its double mandate from Congress: keeping inflation low and keeping employment high.

I think the writer means discretionary policy rather than a "discreet approach." I'm a stronger advocate of inflation targeting than Kohn, but I would not oppose him and a Greenspan clone with his experience would not be likely to upset financial markets.

    Posted by on Tuesday, October 4, 2005 at 01:23 AM in Economics, Monetary Policy, Politics | Permalink  TrackBack (1)  Comments (3)


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    » The Economist: Don Kohn should fill Alan Greenspan's shoes from New Economist

    The Economist cover story this week is about Alan Greenspan, A hard act to follow. The leaders notes that although President Bush said last week he's looking for a successor to Mr Greenspan who would be seen as politically independent and who would th... [Read More]

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