A Chance to Depersonalise Fed Monetary Policy

Article excerpt

Byline: JOANNE HART

SPECULATION that 75-year-old Alan Greenspan might retire as chairman of the US Federal Reserve Board died down last year after Democrat President Bill Clinton announced the reappointment of the jazz-playing official to his fourth four-year term at the helm of the US central bank.

Clinton's move was essential. At the time Greenspan's reputation was such that to have dispensed with the Republican official would almost certainly have delivered a damaging shock to global financial markets and so to the Democrats' election prospects.

Recently, how ever,rumours that Greenspan will be leaving at the end of the year have resurfaced.

This raises the prospect that 2002 m ay see new leadership at both the Fed and the European Central Bank, which was meeting today to discuss euro-zone interest rates.

W im Duisenberg, the ECB president-has indicated that he will not complete a full term in office and behind the scenes the jockeying for position over who should succeed him is already well under way.

In the US, the idea that Greenspan might be moving on was given added weight this week w hen Rudiger Dornbusch, professor of economics and international management at the Massachusetts Institute of Technology, said the prospect of an imminent change at the top of the Fed should be taken seriously, so seriously that the US central bank needs to rethink the way it conducts monetary policy and adopt an explicit inflation target as the Bank of England has done.

Dornbusch is a US establishment economist sufficiently plugged-in to the Washington rumour mill that his comments carry real value, the more so since Greenspan's reputation has taken such a battering this year that his status as a market icon is no longer a barrier to early retirement.

No less interesting, how ever, is the debate Dornbusch is keen to trigger about the Fed's approach. Plenty of central bankers around the world feel the lack of an explicit monetary strategy means Fed policymaking is less transparent and its accountability more fuzzy than it ought to be. …

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