Bernanke Chosen to Succeed Fed's Greenspan
RENEE MONTAGNE, host:
The man President Bush nominated to be the next chairman of the Federal Reserve is getting generally positive responses. Ben Bernanke is former Princeton economics professor and Federal Reserve Board governor. In June, he became head of the president's Council of Economic Advisers. Bernanke is in line to replace Alan Greenspan, the Fed chair for 18 years, who was described yesterday by President Bush as a legend. NPR's John Ydstie reports.
JOHN YDSTIE reporting:
Ben Bernanke said only a few words when he stepped to the podium in the Oval Office yesterday with the president and Chairman Greenspan at his side, but they were words many investors and others wanted to hear.
Dr. BEN BERNANKE (Federal Reserve Chair Nominee): Alan Greenspan has set the standard for excellence in economic policy-making. If I am confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years.
YDSTIE: Indeed, Bernanke's former colleagues at the Fed suggest he's likely to do just that. Laurence Meyer, a former Fed governor, said Bernanke shares Greenspan's approach to monetary policy; that is, the willingness to act pre-emptively to raise or lower interest rates to block inflation or avoid recession. Meyer says Bernanke also shares the current Fed chairman's commitment to move rates up or down gradually. Another former Fed governor, "Ned" Gramlich, says he's confident Bernanke has the capacity to step into Greenspan's shoes.
Mr. EDWARD M. GRAMLICH (Former Fed Governor): It's a tough act to follow, no question, but I think if anybody could follow it, it would be Ben.
YDSTIE: Bernanke's nomination got positive response across the political spectrum from President Clinton's former Labor Secretary Robert Reich to members of The Wall Street Journal's conservative editorial board. These comments from David Wyss, chief economist at Standard & Poor's, were typical of support Bernanke received from the economics community.
Mr. DAVID WYSS (Chief Economist, Standard & Poor's): Well, in terms of his intellectual stature, he's probably the best qualified chairman in history. At Princeton, he was considered perhaps the expert on monetary policy in the United States.
YDSTIE: But intellectual brilliance is only one of the skills a Fed chairman needs, says Wyss.
Mr. WYSS: If there's one weakness for Bernanke is that he's had less political experience than the two previous Fed chairmen.
YDSTIE: And in many people's eyes, Alan Greenspan's political savvy is one of the skills that made him such a successful chairman. For instance, it allowed him to forge an alliance with the Clinton administration that led to a balanced federal budget. Colleagues do say that though Bernanke is a Republican, his political views do not affect his economic analysis, which should give him broad credibility on Capitol Hill. Bernanke's strengths as a communicator were highlighted by the president as he introduced his nominee yesterday.
President GEORGE W. BUSH: As Fed governor, Ben advocated greater transparency and communication with the public and markets. His speeches were widely admired for their keen insight and clear, simple language.
YDSTIE: Clarity and simplicity are not characteristics attributed to the current Fed chairman, whose pronouncements are often opaque and studied like the utterance of a Delphic oracle. Maybe the major reservation about Bernanke is his support of something called inflation targeting; that is, publicly stating that Fed policy will be aimed at keeping inflation in a specific range, say between 1 and 2 percent. Robert Hormats, a managing director at the investment bank Goldman Sachs, says it would be a challenge.
Mr. ROBERT HORMATS (Managing Director, Goldman Sachs): The current Fed never endorsed inflation targeting and Chairman Greenspan has never endorsed it himself. So to come up with a number and try to gear monetary policy to adhering to that number or meeting that target is not an easy thing.
YDSTIE: Indeed, the European Central Bank has tried inflation targeting and the results have been disappointing and partly blamed for the poor growth in European economies. Critics also say inflation targeting makes it more difficult for a central bank to respond to shocks like stock market meltdowns or terrorist attacks. Senator Paul Sarbanes of Maryland, the ranking Democrat on the Senate Banking Committee, said Bernanke would have an intense confirmation hearing and suggested his views on inflation targeting would be probed. Still, by most accounts, Bernanke's confirmation is not in doubt. John Ydstie, NPR News, Washington.
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