If Ireland is a small cog in the world economy, the United States Federal Reserve is one of its largest levers. And if ratified by the US Senate, the nomination of Ben Bernanke to succeed Alan Greenspan as chairman of the Fed is likely to change the substance and style of US monetary policy. This has possible implications for the conditions affecting future demand in our largest trading partner, for the world economy and, more indirectly, for the future policy of the European Central Bank.
As personal debt levels rise and our economy becomes more vulnerable to interest rates fluctuations, we must pay more attention to those who control the levers of the global economy. Their role requires a blend of economic insight, administrative competence and good communication. In Bernanke, these ingredients are present, if not yet fully blended.
The immediate implication of his elevation relates to the post he vacates. His departure as chairman of the Council of Economic Advisers deprives the Bush administration of valuable expertise. Since the Clinton era, the private and public sectors of the US economy have become more indebted and the deficit on the US balance of payments has grown. Bernanke inherits an economic landscape that is more sensitive to interest rate rises and more at risk from global imbalances.
His predecessor, Alan Greenspan - described by some as the greatest central banker who ever lived - was criticised for contributing to this situation by keeping interest rates too low, as well as for appearing to endorse George Bush's policy of tax cuts. But his was a pragmatic approach that reflected the Fed's mandate to balance the goals of low inflation and low unemployment. Greenspan's great insight into the workings of the US economy contrasts with Bernanke's more academic perspective. The latter's style of communication has, to date, been direct, in contrast to the subtle approach of Greenspan.
Bernanke's open support for looser monetary conditions during 2003 has caused some to view him as a monetary policy "dove" who is unwilling to raise rates. But the Fed is a slow ship to steer and the upward momentum in rates is likely to continue. Bernanke may wish also to avoid any perception that he is afraid to raise rates under the presidency which appointed him. As a result, the process of rate increases set in train by Greenspan - and the upward influence which this places on euro zone rates - is unlikely to be interrupted.
In the longer term, Bernanke's instincts are likely to work their way through to Fed policy, but his past preference for looser policy in times of low inflation is likely to be matched by a greater willingness to raise rates when inflation threatens. And he is more of an activist than Greenspan. On its own, this might have the undesirable effect of more volatility in interest rates and economic activity. His best contribution will be to marshall his undoubted skills into building a clearer and more collegiate approach to monetary policy-making.