Bernanke nominated for second term and deficit forecast explodes

Ben Bernanke has been nominated for a second term as chairman of the Fed. This relieves the uncertainty of who will be at the helm of the Fed. There is an irony that the announcement came on the same day that the OMB announced that the expected Federal deficit will top $9 trillion. This is much greater than expected by the Administration in May and more in line with estimates from CBO. This should not be a surprise but confirms what we may already know.

The irony is that the man who may have to solve the deficit problem is also the person who is supposed to be independent of the political issues on the fiscal side, the Fed chairman. Announcing Bernanke's reappointment early is supposed to eliminate some of the political issues surrounding the Fed, but having it be coupled with the OMB announcement only further focuses attention on the fact that much of the Fed deficit may have to be monetized.

The deficit is not a problem today but weaving through central bank independence and helping to minimize the debt impact will be a difficult job for any central banker. These events are also at a time when there will be more on the plate of the Fed as it takes on new regulatory responsibilities. Is this job someone really wants to have?