MADELEINE BRAND, host:
Back now with DAY TO DAY. I'm Madeleine Brand.
Now that President Bush has announced Ben Bernanke as Federal Reserve Chairman Alan Greenspan's replacement, Wall Street won't be the only financial market paying attention. The Fed is by far the world's most important central bank. Investors everywhere are digesting this news. And joining us from "Marketplace's" European desk in London is Stephen Beard.
And, Stephen, what's the reaction so far in Europe to his choice?
STEPHEN BEARD reporting:
Well, no financial market reaction. Most of the market players are done for the day, and they're heading home. But, you know, he was widely regarded here as the likeliest successor, so there's been no great surprise, nor will there be, I think. I think, you know, European policy-makers and investors actually preferred him over the other contenders. I think they like him because he favors the same approach to monetary policy that Europe does: inflation targeting; so that's where a central bank sets a target for inflation and then sticks to it, cutting or raising interest rates accordingly. That's the way the Bank of England operates; it's the way the European Central Bank operates. It isn't the way the Fed has operated under Alan Greenspan. So I think Europeans generally are happier--will be happier with the Bernanke approach.
BRAND: And any concern about his close political association with the Bush administration?
BEARD: One or two analysts have raised that issue, but I think most investors and policy-makers don't think that is a problem. The general view is that this is such a big job and the Fed is such a powerful and independent institution that political cronyism and toadying is kind of unlikely at the top. It has been noted that Alan Greenspan, with Republican sympathies, was able to operate well under both Republican and Democrat presidents. Of course, the controversy about Greenspan's stance, for example, on the Bush tax cut did register here, but generally Greenspan certainly has been regarded as a highly independent central banker.
BRAND: And what are Europeans hoping from this new Fed chair?
BEARD: Well, inflation suddenly seems to be much more of an issue than before. Inflation fears spooked global financial markets last week, and it's noted that short-term interest rates in the US are lower than the inflation rate. So the markets hope and expect Bernanke will continue tightening monetary policy, especially as an inflation-targeter. They expect him to continue pushing up short-term interest rates at a measured pace to curb inflation and cool down the US housing market. They certainly don't expect him to be soft on inflation. But I think, you know, everyone agrees that he faces a formidably difficult environment over the next few years, much less favorable than the one that Alan Greenspan faced when he took over. The size of the US budget and trade deficits, the scale of the imbalances mean that the, really, Bernanke faces a very, very daunting task in the next decade.
BRAND: Stephen Beard of public radio's daily business show "Marketplace." And "Marketplace" is produced by American Public Media.
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