Local analysts differ on their views of the new Fed chairman and his commitment to fighting inflation
The nomination of Ben Bernanke as Federal Reserve Chairman has drawn a mixed reaction among Hong Kong's financial community, with some casting a wary eye on the man who will become de facto chief over local monetary policy.
Among the most pointed commentaries circulated last week came from CLSA chief strategist Christopher Wood who welcomed the man about to become the world's most powerful central banker in the GREED & fear newsletter: 'There is now the risk of a mad hatter running the Fed ... [our] view is that Bernanke's selection as Fed chairman is a fundamentally dangerous appointment. His public speeches in recent years have revealed a dangerous obsession with the naive notion that printing money can solve all problems.'
Mr Bernanke is expected to take the helm in January when current chairman Alan Greenspan steps aside. Although the nomination must be approved by the Senate, most observers believe it will pass with few hiccups.
Unlike his predecessor, Mr Bernanke favours inflation targeting, which would bring a more rule-based policy approach to the Fed versus a Greenspan era noted for an intuitive understanding of the market. Mr Bernanke was criticised in international banking circles for his 2002 comments to the effect the Fed possessed an electronic printing press and could resort to unconventional policy if faced with a Japan-style bust. At the time, deflation was considered a threat, however many viewed the comments as irresponsible and in conflict with a central bankers' role as a guardian of sound money. The statement coincided with the Fed's ultra-aggressive interest rate cutting programme that eventually saw mortgage rates decline to generational lows.
Mr Wood sees a gloomy future ahead for dollar-based economies. He says it's hard to fathom Mr Bernanke, a former Princeton university professor, will stray from established Fed policy after so many years at Mr Greenspan's side. 'That Bernanke is associated with 'easy money' seems clear from Wall Street's exuberant reaction to news of his appointment,' Mr Wood says. 'With Mr Bernanke at the helm, the prospects of a long term breakdown of the US-dollar paper standard becomes much more likely.'
'[We are] even more committed to the long held view that gold and gold mining shares remain essential investments or insurance for owners of financial assets globally.'