New Fed chief: Economy on track to grow
Thursday, February 16, 2006
WASHINGTON -- New Federal Reserve chairman Ben Bernanke said Wednesday the economy is on track for good growth this year, sticking closely to predecessor Alan Greenspan's script with one big difference: His comments were much easier to understand.
In his debut congressional testimony as Fed chairman, Bernanke signaled that the central bank, which has raised interest rates 14 times since June 2004, stood ready to boost rates more if needed to combat inflation.
Investors and private economists, who had been apprehensive that Bernanke might sound a tougher line on inflation than Greenspan, said they detected no switch in policy from the Greenspan Fed.
"There were no big surprises. Bernanke kept very much to the promise he made at his confirmation hearing that he would maintain continuity with Greenspan" said David Jones, chief economist DMJ Advisors, a private forecasting firm in Denver.
Wall Street took Bernanke's testimony in stride with stocks ending the day up slightly. According to preliminary calculations, the Dow Jones industrial average rose 30.58 points to close at 11,058.97 after rising 136 points Tuesday.
A respected economics professor at Princeton before entering government service as a Fed governor in 2002, Bernanke demonstrated during more than three hours of grilling from the House Financial Services Committee that he was up to the task of answering questions without upsetting financial markets.
Several committee members in fact complimented Bernanke for his straightforward answers, a contrast to Greenspan, who mastered the art of using complex sentences to dodge questions he did not want to answer.
"I can see that you were a former teacher," said Rep. Carolyn Maloney, D-N.Y. "You are very clear in your responses."
But while Bernanke was more direct, he skillfully avoided being led into areas where he did not want to state an opinion. Democrats tried several ways to get Bernanke, who served last year as Bush's chief economist, to criticize the president's drive to make the tax cuts permanent at a time of high budget deficits.
At one point, he apologized, saying, "I am going to be an economist and give you an on-the-one-hand and on-the-other hand" response.
Dressed in a conservative gray suit, Bernanke sat alone at the witness table, often scribbling notes on the questions, as he was pushed to talk about a variety of issues from soaring budget and trade deficits to what should be done about growing gap between the wealthy and the poor.
He acknowledged that widening income inequality was a problem, but he said it had been occurring for a quarter-century and as did Greenspan, he said the best way to deal with the problem was through education and job retraining.
The only time Bernanke seemed uncomfortable was when he was asked for his reaction to speeches Greenspan has made, reportedly for large amounts of money, to an audience in Tokyo and a New York investment house.
"According to government ethics rules, it is permissible for a former [Fed] governor to speak so long as he does not disclose private information," Bernanke said. "I have no information that he has violated that rule."
The Jan. 31 Fed meeting was the last presided over by Greenspan, who stepped down that day after 18 1/2 years as Fed chairman to be succeeded the next day by Bernanke.
Private economists predicted the central bank will raise its target for the federal funds rate, the interest that banks charge each other, by another quarter point to 4.75 percent at Bernanke's first meeting on March 27-28.
They said a final hike that would push the funds rate to 5 percent could occur at the following meeting on April 10.
Bernanke said future rate hikes would depend on incoming economic data. But he said despite last year's surge in energy prices and the devastation from the Gulf Coast hurricanes, recent information showing strong employment growth and retail sales in January "suggests that the economic expansion remains on track."
"With respect to the general conduct of monetary policy, Bernanke revealed himself as a clone of Alan Greenspan," said Brian Bethune, chief U.S. economist for Global Insight, who predicted two more quarter-point rate hikes before the Fed moves to the sidelines.