The changing of the guard at the Federal Reserve could end up looking positively Reaganesque. The timing of Chairman Ben Bernanke's fate may be just as important to markets as the name of his replacement. His predecessor, Alan Greenspan, gave investors a heads-up that he was leaving months before the White House tapped Bernanke for the job. Markets would be better served by a seamless 1987-style handoff.
There's still no official word from Bernanke, or President Barack Obama, about what will happen when the Fed chief's second term ends on January 31. But subtle hints and chattering-class conjecture suggest Bernanke's days are numbered, by choice, at the top of the world's most powerful central bank. If that's true, investors should thank Bernanke for his discretion and hope that he and Obama take a page from former President Ronald Reagan's playbook.
Nearly three decades ago, the Gipper simultaneously announced that Paul Volcker, the Fed chairman who tamed double-digit inflation by aggressively raising interest rates, was out, and free-market ideologue Alan Greenspan was in. The switch was widely seen as politically motivated - Greenspan's pro-deregulation views were much closer to the president's - and the bond markets and dollar temporarily swooned when the news first hit.
Even so, the approach seems apt for today. Confirming Bernanke's exit and nominating his successor at the same time could minimise shocks to already shaky markets and keep investors calm as the Fed tries to unwind its extraordinary policy of rock-bottom interest rates.
Piling on more uncertainty would be not only unnecessary, but potentially damaging. There's no good reason for investors to be surprised by a changing of the guard, given the rampant speculation about who Obama will pick. But they can get rattled just the same. Consider the reaction last month to Bernanke's talk of tapering Fed stimulus.
Putting a name to his successor, whether it be Obama's one-time economic adviser Larry Summers, Fed Vice Chairman Janet Yellen or former Treasury Secretary Timothy Geithner, would at least give investors something to hang on to. And depending on who it turns out to be, the move would also allow them time to get used to the change. That's something Reagan, a master of the calming gesture, would surely approve.
