Bernanke to replace Greenspan
Tuesday, October 25, 2005
If approved by the Senate, Bernanke would succeed Alan Greenspan, who has spent 18 years at the helm and is expected to step down Jan. 31.
WASHINGTON -- Ben Bernanke isn't a household name -- yet.
But if all goes well, he'll be the next chief of the Federal Reserve, wielding enormous power over the economy and the portfolios of millions of investors large and small.
Bernanke, a plain-speaking former economics professor, was chosen Monday by President Bush to replace Alan Greenspan. Largely unknown to the general public when he took over the Fed in 1987, Greenspan has risen to iconic status.
Bush called him a "legend." And Bernanke promised to continue the policies of Greenspan, who steps down Jan. 31.
"Ben has done path-breaking work in the field of monetary policy, taught advanced economics at some of our top universities and served with distinction on the Fed's Board of Governors," said Bush, who was flanked by Bernanke and Greenspan during a brief White House ceremony. "He's earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community."
Greenspan called Bush's choice "a distinguished appointment. Ben comes with superb academic credentials and important insights into the ways our economy functions."
It was the third time in as many years that Bush has turned to the 51-year-old Bernanke for a sensitive economic post. The president named him to the Fed board in 2002, then made him chairman of the president's Council of Economic Advisers earlier this year.
The nomination comes at a difficult time for Bush. His approval ratings are sagging, his choice of Harriet Miers for the Supreme Court is under attack, and his top political adviser -- Karl Rove -- is a central figure in the investigation of who leaked the name of an undercover CIA officer.
The initial reaction to Bernanke was positive. Academics, Republican and Democratic lawmakers, economists and other experts said Bernanke, a leading thinker on monetary policy, has impeccable academic credentials for the Fed post.
On Wall Street, the Dow Jones industrial average soared nearly 170 points, the best one-day showing in six months.
Bernanke (pronounced ber-NANK-ee) acknowledged that he has big shows to fill, saying Greenspan "has set the standard for excellence in economic policy-making."
If he is approved to a four-year term as Fed chairman, Bernanke said, his first priority would be "to maintain continuity" with the policies and strategies during the Greenspan era. He pledged to do all he could to ensure "the continued prosperity and stability of the American economy."
The Fed determines interest rate policies that affect any person or business that borrows money. Its decisions -- along with utterances from the Fed chief -- can influence financial markets around the globe.
As the country's second-longest serving Fed chairman, the 79-year-old Greenspan has attained cult-like status and often is refereed to as the second-most important person in Washington. On Greenspan's watch, the U.S. economy grew from March 1991 to March 2001, the longest continuous expansion in history. The two recessions during his tenure -- in 1990-91 and in 2001 -- were mild.
While Bernanke pledged continuity with his predecessor's policies, the two men differ on whether the Fed should set targets for inflation -- Bernanke thinks it should, Greenspan does not. Otherwise, they share a similar philosophy, so much so that while the younger man was at the Fed, market observers often looked at his speeches for insight into Greenspan's thinking.
Bush said Bernanke "is the right man to build on the record Alan Greenspan has established."
Marc Lackritz, president of the Securities Industry Association, said Bernanke's service at the Fed under Greenspan "has provided him invaluable preparation for this critical role, and his steady hand and solid judgment should serve our financial markets well."
Some economists wondered whether Bernanke's lack of hands-on business or Wall Street experience and limited policy-making experience in Washington could be a drawback.
With rising inflation, an uncertain employment climate, bloated budget and trade deficits, and a housing market surge that appears to be nearing an end, there are many issues confronting the next Fed chairman.
Some Democrats question whether Bernanke would do enough to use the Fed's bully pulpit to get Congress and the administration to rein in bloated budget deficits, which over time could pose a danger to the economy if they push long-term interest rates up. And, they hope Bernanke will be truly independent from the Bush administration. That's crucially important for a Fed chairman to earn credibility with Wall Street and central bankers from around the world.
Democrats also seized on Bernanke's statements indicating support for extending Bush's tax cuts.
Sen. Chuck Schumer, D-N.Y., called that "very troubling" while Senate Minority Leader Harry Reid, D-Nev., said it "will be important that Mr. Bernanke demonstrate that he is committed to guiding the economy to produce results for all Americans rather than promoting partisan policies that benefit special interests and an elite few."
Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, which will consider the nomination, struck a positive note: "I am confident that this nominee will be thoroughly questioned but also well-received by all members of our committee."
Sen. Paul Sarbanes, the top-ranking Democrat on the committee, said Bernanke has "first-rate academic qualifications, but we need to have a thorough hearing on him to explore a number of issues, including his ability to render independent judgments."
The only senator to say he would vote against the nomination was a Republican -- Kentucky's Jim Bunning, a frequent Greenspan critic. He said Bernanke did not show enough independence while on the Fed.
A date for a nomination hearing hasn't been set. But Shelby indicated it's possible a hearing could take place before Thanksgiving; he hoped the confirmation process could be completed before Congress adjourns for the year -- possibly in late November or in December.
Bernanke has won Senate confirmation three times in the past: twice at the Fed and once to be chairman of the CEA. If all goes smoothly, Bernanke could take over on Feb. 1. His first Fed meeting would be March 28.