From an editorial Thursday in the Chicago Tribune:
You know your job security is shaky when the chief executive announces on national television that youve stayed too long. Thats especially true when the chief executive is president of the United States.
President Barack Obama made his comments about Federal Reserve Chairman Ben Bernanke in a PBS interview Monday. Bernanke has stayed a lot longer than he wanted to or he was supposed to, Obama said.
On Wednesday, Bernanke announced that the Fed expects to scale back its main economic stimulus program later this year and end it around the middle of next year.
Put the two developments together, and it looks like the days are numbered for the Feds chairman and for the bond-buying program that he has resolutely championed. The time has come for the U.S. economy and financial markets to prepare for a tricky transition from a long period of easy money under Bernanke.
A new approach is overdue. The Fed needs to shift away from Bernankes perpetual state of crisis management. Whether Obama taps Fed Vice Chair Janet Yellen or one of the many other candidates being touted as Bernankes successor, its a good time for a change. Bernankes second four-year term ends Jan. 31.
Bernanke deserves credit for his starring role in rescuing the economy from disaster during the financial meltdown of 2008-09. He also has served the public interest by calling out Congress for its failure to reform a broken federal tax system or to put entitlement spending on a sustainable track.
But lately Bernanke has worried us with his commitment to pouring new money into an economy that has been growing, albeit sluggishly, for years now. The Feds latest bond-buying program, known as QE3, has succeeded in suppressing long-term interest rates. But the cost of such a heavy-handed policy has yet to be reckoned with.
Bernankes Fed has expanded its balance sheet to a bloated $3.4 trillion and counting, up from $877 billion in pre-crisis 2007. It is still buying $45 billion in Treasuries and $40 billion in mortgage-backed securities every month.
The Fed will be compelled by inflationary pressures to stop buying bonds, which Bernanke acknowledged Wednesday. Eventually it will need to reverse course, selling the assets it has acquired. That action is likely to boost interest rates, slow the economy and potentially put the brakes on a stock market that has raced ahead this year.
But if Bernanke wont do it, his successor will have to. Bernanke acknowledged as much at a news conference: I dont think that Im the only person in the world who can manage the exit. Lets hope not, since it looks like Bernanke wont be around to manage anything for too much longer.
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