John YDSTIE, host:
This is the last day of Allan Greenspan's 18-and-a-half year tenure as Chairman of the Federal Reserve Board. He's expected to mark his departure by raising interest rates one more time before he hands over the job to Ben Bernanke. David Wessel is The Wall Street Journal's Deputy Washington Bureau Chief. Steve Inskeep asked him how the transition is going.
Mr. DAVID WESSEL (Deputy Washington Bureau Chief, The Wall Street Journal): Pretty smoothly, it seems to me. Unlike all the sturm and drang over the Supreme Court nominees, Mr. Bush's appointment of Ben Bernanke to replace Mr. Greenspan has been pretty well received, both on Capitol Hill and on Wall Street.
STEVE INSKEEP, reporting:
How solid is the economy at this moment?
Mr. WESSEL: You know, the fourth quarter turned out to be very disappointing, only 1.1% growth. So, Mr. Bernanke has to decide, is the economy slowing down precipitously, is the housing bubble about to burst, is business investment running out of steam? Or is inflation about to take off? The fourth quarter GDP numbers had a little bit of noise about inflation, and I'm sure that's something that Mr. Bernanke will be worrying about, because he needs to establish his credibility as an inflation fighter right out of the box.
INSKEEP: So, he has to decide, do I raise interest rates even again or keep them steady, or even lower them a little bit? How soon dose he have to decide?
Mr. WESSEL: Mr. Greenspan will preside over one more rate increase at today's meeting. The next meeting doesn't come until March 28. So he's got almost two months to figure out what's going on.
INSKEEP: Now, David, we've talked a lot in the past about Greenspan being difficult to read. Are people already trying to figure out how to read Ben Bernanke?
Mr. WESSEL: Yes, and they will be. In the middle of February, he has to appear before Congress and deliver the Fed Semiannual Monetary Policy Report. And it won't be like any other testimony he's given. When you become Chairman of the Fed, you get an incredibly powerful megaphone, and in my experience, Fed officials, Treasury officials, they never understand just how loud the megaphone is until they speak into it the first time.
INSKEEP: Does that mean that even though the guy's been warned, he's almost sure to say something that's going to cause stocks to go tumbling, or soaring, or something?
Mr. WESSEL: Almost sure, yes. And it, it's likely to be an inadvertent remark. You know, every Fed Chairman wants to move the markets when he thinks they're going the wrong direction. The danger is you inadvertently move them. You say something that you think is, like reading an economic textbook, and you'll discover that, all of a sudden, it has enormous import on the market.
INSKEEP: Can we learn anything from the last transition between Fed Chairmen back in 1987 when Paul Volcker left, and Allan Greenspan took over?
Mr. WESSEL: Mr. Greenspan was not seen as nearly as capable as Mr. Volcker when he was appointed. The stock market crashed two months after Mr. Greenspan took over. He and his colleagues at the Fed did a great job of managing it, and we came through it without much economic pain. That established Mr. Greenspan's credibility. Now, I doubt that Mr. Bernanke is praying for a stock market crash in his first couple of months, but he will surely be tested in some crisis. And if he does well, his credibility will go up.
INSKEEP: David Wessel with The Wall Street Journal. Good to talk to you again.
Mr. WESSEL: Good to talk to you, Steve.
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