Many of the challenges Mitt Romney would face in choosing a Federal Reserve chairman, should he win the presidency, are the same as those that President Obama would encounter: the need to find someone with an exemplary mix of skills as an economist, communicator and financial regulator.
But he would have an added challenge. Romney would need to decide whether he fully buys in to the arguments he has made in favor of a tighter money supply. Is he willing to put the nation’s money where his mouth is?
“The American economy doesn’t need more artificial and ineffective measures,” Romney’s campaign said after the Fed announced its latest strategy to pump more money into the economy in September, a policy aimed at bringing down unemployment. “We should be creating wealth, not printing dollars.” Romney has said he would not reappoint Fed Chairman Ben S. Bernanke when his term expires Jan. 31, 2014, about one year into the new presidential term.
If Romney sticks to his embrace of hard money, it would be a rare event in economic history. Elected political leaders, at least outside of Germany, almost always favor lower interest rates to higher, and easier money to tighter. Aides to Richard M. Nixon, Ronald Reagan and George H.W. Bush pressured the Fed to ease monetary policy, at times of significantly higher inflation than what has been experienced recently. Bush is said to have blamed his loss in the 1992 election on Fed Chairman Alan Greenspan’s unwillingness to cut interest rates enough.
So, in selecting a replacement for Bernanke, Romney would have to weigh whether he wants someone who will push the Fed to raise interest rates and sell off the central bank’s holdings of assets sooner rather than later, in the interest of preventing potential inflation in the long term. Does he believe in tighter monetary policy deeply enough to endure the risk that those actions will slow the economy or even tip it into a new recession?
That answer will help determine whom he chooses for the top job at the Fed. Here are some of his primary options. As in Monday’s piece on Obama’s options for a Fed chairman, they are divided into “above the line” (people almost certain to receive serious consideration) and “below the line” (a longer list of individuals who could be worthy of discussion) candidates.
John B. Taylor
He is a Stanford University economist and a leading monetary economist. Central bankers the world over use his “Taylor rule” as a benchmark to help analyze where they should set short-term interest rates, given economic conditions in their nations. He has also emerged in recent years as a staunch critic of the Bernanke-led Fed’s easing policies and fiscal stimulus efforts. He would, barring a 180-degree change of heart, steer the Fed away from its unconventional easing policies and try to withdraw its extensive stimulus efforts in place since 2008. Taylor does have high-level government experience as undersecretary of the Treasury for international affairs in the early years of the George W. Bush administration. He had a reputation then for a sharp independent streak, which can be a feature, not a bug, in a Fed chief.