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Romney, senior adviser diverge on Bernanke

A senior adviser to Mitt Romney appeared to split with the GOP candidate Tuesday over Ben Bernanke, the Federal Reserve chairman who has been a target of conservative critics.

Glenn Hubbard, an economic adviser to Romney’s campaign, defended Bernanke in an interview with Reuters, raising the prospect that Romney might be trying to moderate his position on the Federal Reserve in the wake of the GOP presidential primary.  

Economic experts, however, downplayed the significance of the divergence between Romney and his economic guru and predicted the presumptive GOP nominee would stick to his pledge of replacing Bernanke.
“My guess is he was covering his bases. My guess is Romney has little desire to get into a debate over the Fed. He has some people on his side who hate the Fed. He has a lot of people on his side who want to get rid of the Fed,” said Dean Baker, co-director of the Center for Economic and Policy Research. “Bernanke is very moderate. If you get rid of him, who do you pick to replace him? My guess is that was just a hedge.”
Hubbard told Reuters that if Romney becomes president, he would advise that Bernanke should “get every consideration” to continue as chairman after his term expires in January of 2014.
“Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back,” Hubbard said, noting that he has long known Bernanke and speaks with him frequently.
Hubbard’s comments quickly gained attention because Romney declared during the GOP primary that he would not reappoint Bernanke, whose support for quantitative easing and other stimulus measures has sparked opposition from conservatives.
“I’d be looking for somebody new,” Romney said during a presidential debate in April.
Hubbard appeared to soften the campaign’s stance on Bernanke in May when he called Bernanke a “hero” in an interview with The Wall Street Journal.
A spokeswoman for the Romney campaign did not respond to a request for comment.
Douglas J. Elliott, a fellow in economic studies at the Brookings Institution, applauded Hubbard’s defense of Bernanke and said political attacks against the Fed are worrisome.
“It’s very difficult to know what’s truly going on behind the scenes in a campaign,” he said. “I’m glad to hear it. I like Bernanke and I don’t like the politicization of the Fed.”
Douglas Holtz-Eakin, a senior economic policy adviser to Sen. John McCain (R-Ariz.) during his 2008 presidential bid, said Hubbard played an “instrumental” role in President George W. Bush’s decision to appoint Bernanke as Fed chairman in October of 2005.
Hubbard served as chairman of the Council of Economic Advisers under Bush from 2001 to 2003. Bernanke later served in the same position.
“I have no idea if it was a conscious move. Glenn and Ben have a personal history,” Holtz-Eakin said. “From a campaign perspective, he said the right thing: ‘I will advise,' and Mr. Romney will decide.”
Hubbard, who is now dean of Columbia Business School in Manhattan, stopped short of endorsing all of Bernanke’s policy decisions.
“I may or may not agree with him, but that's very different from saying I question his motives. I wish politicians would stop doing that," Hubbard said.

“I would echo everything Glenn said. I think the world of Dr. Bernanke. He’s done a tremendous job as Fed chairman [but] I disagree with some things he’s done,” Holtz-Eakin said.

Minutes of the Fed’s July 31-Aug. 1 meeting released Wednesday showed that support is growing within the central bank for another round of quantitative easing, which it said could come “fairly soon."

Democrats such as Sen. Charles Schumer (N.Y.), a member of the Senate leadership, have urged the Fed to deploy stimulative policies while Congress remains mired in partisan gridlock.

Economic conditions will have a strong impact on the election, but experts say another round of stimulus from the Fed will not effect significant improvement by Election Day.

“QE 3 would do nothing to raise the growth rate of the economy and the Fed shouldn’t do it,” Holtz-Eakin said, referring to an anticipated third round of quantitative easing, whereby the central bank would buy government treasuries to create incentive for riskier investments.

Holtz-Eakin said buying more bonds would make it more difficult for the Fed to mop up excess liquidity once the economic recovery gains steam. He said it would also “use up some of the bullets” available for emergency action in the future.

Elliott said another round of easing would immediately spur the stock market but cautioned it would take months to move the broader economy.

“It could show up in stock market prices but wouldn’t have a chance to feed through to the real economy,” he said. “Financial markets do have an effect on confidence and how people behave, but there’s significant lag time in how it affects the economy.”