Yesterday, in the closest vote to confirm a Fed chair ever, the Senate gave Ben Bernanke his job for another four years. The analysis in this Washington Post article suggests that Bernanke may need to change his tune and adopt more aggressive policies to boost employment because of the message sent by the vote; Mark Thoma wonders if Bernanke will get the message, too, writing that "it has not been clear that the unemployment goal is preeminent, and going forward the Fed needs to demonstrate it gives unemployment the highest priority."Good luck with that.
This vote is not going to convince Bernanke to change his approach to monetary policy by taking full employment goals into account. I doubt Bernanke is too concerned about his third term right now, and if he was planning to respond to current criticism with policy adjustments, wouldn't he have done it before his confirmation rather than after? (On the other hand, it should provide optimism to those reformers who want to rejigger the Fed's regulatory responsibilities by giving its consumer regulation powers to a new agency and making it part of a broader risk management council).
Now Bernanke's policy decisions are essentially untouchable for another four years, and unemployment will likely be much lower at the end of his term no matter what he does. The question is what he does to deal with the problem now. While Bernanke's handling of the financial crisis certainly displayed a willingness to buck economic orthdoxy, his handling of the recovery looks like a return to status quo. President Obama made a mistake in nominating Bernanke that he, his party, and the American people will likely come to regret.
-- Tim Fernholz
