Two immediate thoughts come to mind about this, one economic and one political:
1) Ben Bernanke is a safe, strong choice, sure to be liked by both the Bond and Equity markets. He has already shown a gift for Jawboning, which has evolved into a key aspect of the Fed Chair’s job. One can only hope that his infamous "printing press" comments — essentially threatening hyper-inflation as a response to Deflationary concerns — was just so much Jawboning.
2) The Fed chair replacement comes amid the tumult of the Harriet Miers Supreme Court nomination, the previous black eye of the FEMA chief Brown — and not even discussing the problematic appointments of the poor planning in Iraq post-War period — this is one appointment that the pro-market White House wouldn’t dream of risking on anything less than a stellar candidate, and that have one in Bernanke. We should expect an easy confirmation.
As a side note, I continue to be stunned by the breadth of the Princeton Economics department continues — not just Bernanke, but Burton G. Malkiel, Alan S. Blinder, Paul Krugman, Alan B. Krueger, Daniel Kahneman (and I have no affiliation with Princeton).
"A specter from the past has been haunting the stock market lately, and,
as with most specters, the question is whether this one is mostly real
or mostly imaginary.
The specter is inflation, and until recently, many investors thought it
was dead and gone. Lately, if you believe the Federal Reserve, it isn’t
exactly ba-a-a-a-ck, but it is lurking. The Fed’s fear of inflation,
together with its clear intention to keep raising U.S. short-term
interest rates to keep inflation in check, is the main thing that has
prevented the much-awaited fourth-quarter stock rally from commencing . . .
A few weeks ago, I gave Professor James Hamilton grief over his 45 year chart of the 12 month change in CPI (1960 – 2005). The very long chart, IMHO, makes inflation look more modest versus its long history than say a 5 year chart would.
Indeed, the impact of any longer term charts is that they make major events look like ripples; You can barely see the 1987 crash on a long SPX chart, and even 9/11 is hard to spot on a 10 year Nasdaq chart.
Today’s WSJ also uses a long term chart — 35 years of CPI and Core CPI. It presents a case that the core underreports inflation. Note that even during the late 1970s peak of CPI, the Core rate tracked the overall index; In 1972-74, however, the Core lagged the CPI appreciably.
That lag is very analogous to the present BLS reporting, and in my opinion, why the Fed is fighting inflation so aggressively.
Note: I modified the WSJ chart, zooming in on the two periods:<spacer>
click for larger chart
Chart courtesy of WSJ
The entire article is worth reading; I have more excerpts, and the original chart, after the jump.
Specter of Inflation Haunts Dow
While Waiting for Fed’s Fears To Subside, Investors Pull Back, Imperiling an Anticipated Rally
THE WALL STREET JOURNAL, October 24, 2005
As I mentioned earlier, I really haven’t had time to think about what I want birthday-wise. But then I recalled I am still waiting for someone (anyone!) to find this (previously mentioned) August 13, 1979 Business Week magazine for me: click for larger graphic I am willing to pay a fair value for this. I…Read More
Category: Financial Press