Fed Governor Mishkin Resigns « naked capitalism

Wednesday, May 28, 2008

Fed Governor Mishkin Resigns

The Fed announced that Frederic Mishkin will be leaving the central bank effective August 31. The governor’s term extended through 2014, but he chose to leave early to return to the Columbia faculty, where he teaches at the business school.

Personally, I think this is a good thing. Mishkin was on the FOMC and a vocal proponent of rate cuts (I’m in complete agreement with Richard Alford that the Fed is looking at the situation incorrectly and pushing the gas pedal too hard). My sense was, both due to his friendship with Bernanke and his forceful style, that his influence was far greater than his single vote.

From Bloomberg:

The departure may create an unprecedented third vacancy on the seven-member Fed Board of Governors this year as the central bank tries to ease the credit crisis. The vacancies mean that a new U.S. president to be inaugurated in January may have an opportunity to influence monetary and regulatory policy by nominating new members to the board.

“He was a pretty important supporter of the move toward aggressive rate-cutting this year,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who used to work at the Fed.

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, has already delayed a confirmation vote for three board nominees for more than a year. After gaining support from the committee, the nominations would go to the full Senate for a vote of final approval…..

Bush asked the Senate last May to confirm to the board Elizabeth Duke, chief operating officer of Virginia-based TowneBank, Larry Klane, former president of global financial services at Capital One Financial Corp. and Randall Kroszner, a Fed governor whose term expired on Jan. 31. Kroszner has continued to serve while awaiting confirmation….

Investors and economists view Mishkin’s speeches as a barometer for Chairman Ben S. Bernanke’s opinions and the direction of Fed policy. Two talks by Mishkin in September, for example, proved to be among the best predictors of the Fed’s surprise half-point rate cut that month.

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Read more on Federal Reserve at Wikinvest

9 Comments:

Aaron Krowne says:

May 28, 2008 at 5:03 pm

An even better predictor of rate cuts was the market rate of interest (as compared to the Fed’s target rate).

I am guessing that that will be just as good a predictor of rate increases.

Scott says:

May 28, 2008 at 5:37 pm

I think that the Senate shouldn’t confirm any of President Bush’s nominees at this stage. Given the fluidity of the political situation in the US and the economic turbulence we are experiencing, new governors should be selected by the new Congress and Administration after the elections.

bobo7874 says:

May 28, 2008 at 6:42 pm

Scott:

According to Bob Novak, the Senate Democrats plan to withhold a vote on Fed nomines in hopes that they can get all vacancies filled under a Democrat president. http://www.realclearpolitics.com/articles/2008/04/wall_street_in_dc.html “The Fed is down to five members because the Senate refuses to confirm Bush’s nominees for three vacancies, waiting for a Democratic president to name governors who are even friendlier than the present board.”

David Pearson says:

May 28, 2008 at 6:49 pm

Mishkin has been to Bernanke as Bernanke was to Greenspan: he’s provided the academic, intellectual justification for the Fed’s deflation-fighting experiments.

It will be interesting to see whether the senate will replace Mishkin any time soon. Bernanke all of a sudden looks isolated: even Yellen, a long-time dove, doesn’t necessarily buy into the Mishkin academic hocus pocus. The Chairman relies on Kohn like never before, but Kohn is only a recent convert to his line of thinking. One wonders how long the Vice-Chairman will continue to serve as an apologist for rising inflation.

Anonymous says:

May 28, 2008 at 7:59 pm

Hope that bastard burns in hell. The democrats won’t save you by the way, socialism isn’t going to be cheap.

Anonymous says:

May 28, 2008 at 9:38 pm

Sy Krass said…

Bravo Anon 8:58, bravo. The republicans have abandoned the middle class, but no one but a die hard democrat thinks adding $250billion of social spending is good. Dleusional every last one of them delusional. Good, they’ll be the first ones wondering why everybody hates them in 2009 as we sink further into the abyss…

Francois says:

May 28, 2008 at 11:24 pm

“they’ll be the first ones wondering why everybody hates them in 2009 as we sink further into the abyss…”

Exactly like the die hards neocons keep wondering why everybody hates them for a war that will cost 2-3 trillions, at a 20 billions /month clip, when all this money could serve domestic priorities, like refurbish our national infrastructure for example.

Can’t let that happen can’t we? Imagine that: it could mean the go-vermin can do something useful.

Horror!

Unsympathetic says:

May 28, 2008 at 11:30 pm

Yves, could you comment on the content / timing / unfettered honesty of Fisher’s speech earlier tonight?

http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm

Thanks!

Yves Smith says:

May 29, 2008 at 1:31 am

unsympathetic,

Thanks for pointing it out, but I’m not going to post on it because I’d need to do a better job of dispatching the entitlements canard than I have time tonight. Which is too bad. Fisher had some really great stuff in the set-up.

He isn’t wrong that the budget deficits will get worse and are being massaged into looking less bad than they will be, but his analysis of the problem and the solution is disputed by those who have looked at the Social Security and Medicare math.

Social Security is not much of a problem at all and could be fixed with pretty minor tweaks (eliminating or merely raising the ceiling on payroll taxes, raising the retirement age a tad). The real problem is Medicare, and completely contrary to Fisher’s claims, the problem is not demographics. The problem is the escalating health care cost assumptions. Which in turn reflect the fundamental, worsening state of our health care system: it costs substantially more, per capita, than any health care system in the world, and delivers not very good outcomes (one comparison of the US system’s results versus that of five other countries scored us last. Many other studies produce similar results).

My favorite factoid: our public health care expenditures are more per capita than the per capita cost of the French health care system. We are doing something terribly wrong.

So if we fix our health care cost problem, that fixes Medicare. But that takes a lot of political will, and with all the looming problems, I suspect crisis management will supersede taking this one on.

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