Bernanke Picked by Bush to Succeed Greenspan at Fed (Update5) Listen
Oct. 24 (Bloomberg) -- Ben S. Bernanke, chairman of the Council of Economic Advisers and a former Federal Reserve governor, was named by President George W. Bush to succeed Alan Greenspan as Fed chairman.
``Ben Bernanke is the right man to build on the record Alan Greenspan has established,'' Bush said today as the men stood by his side in the Oval Office. The economist ``commands deep respect in the global financial community.''
Bernanke, 51, said his first task will be to ensure continuity at the Fed as he replaces the man Bush today called a ``legend.'' The former Princeton economics professor, who was on the Fed from 2002 until June, may champion the Fed's move toward greater openness, possibly including a numeric inflation target, and keep the Fed raising rates to counter rising prices, economists said. He also can help shape the Fed by influencing Bush's picks for two other open Fed governor positions.
``He will put an emphasis on a more predictable format for Federal Reserve monetary policy,'' said William Ford, former president of the Federal Reserve Bank of Atlanta.
Bernanke's first challenges include establishing credibility with investors and Congress and showing that he, like Greenspan, has what it takes to keep the economy on keel during crises. Greenspan, who is 79 and will leave the Fed when his term as governor expires Jan. 31, gave Bernanke his seal of approval.
``The president has made a distinguished appointment in Ben Bernanke,'' Greenspan said today. ``Ben comes with superb academic credentials and important insights into the ways our economy functions.''
Bush's Decision
Bush's decision to tap Bernanke for the CEA in June was widely seen as grooming him to replace Greenspan. Bernanke led surveys as both a qualified and likely choice for successor.
``He's got the right pedigree,'' Ethan Harris, chief U.S. economist for Lehman Brothers Inc. in New York, said of Bernanke, a former economics and policy professor at Princeton University. That said, ``you're replacing an icon with a mere mortal, and he's going to have to prove himself in the job.''
Greenspan maneuvered the economy through two stock-market collapses, in 1987 and 2000, and two recessions in 1990-91 and in 2001. The expansion between those economic slumps was the longest in U.S. history.
``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,'' Bernanke said today.
Confirmation Process
The Fed has raised interest rates 11 times since June 2004, to 3.75 percent, to head off inflation and most economists in a Bloomberg News monthly survey predict the rate will reach 4.5 percent by the end of the first quarter.
With the appointment of Bernanke and two other Fed governors, Bush will become the first president since Ronald Reagan to have appointed or reappointed all seven board members.
Greenspan's successor is subject to Senate confirmation. Banking Committee Chairman Richard Shelby, an Alabama Republican, said today he expects Bernanke to be ``well-received by all members of our committee.'' A spokesman for the committee said he expects a hearing before Congress adjourns this year.
Bernanke joined the Fed as a governor in 2002 and over almost three years helped re-charge the research agenda by reaching out to junior staff economists in informal cafeteria seminars and through speeches on communication policies and alternative steps the Fed could use to ward off deflation.
What Bernanke Must Do
As chairman of the Fed, which sets interest rate policy, Bernanke must move quickly to establish credibility separate and apart from Greenspan. None of his predecessors faced markets that move as quickly on instant information as they do today.
Bernanke must convince bond markets that he is an inflation fighter. Even as the Fed has lifted the benchmark lending rate 11 times over the past 15 months off the lowest levels in 46 years, inflation, by every measure, has moved higher.
U.S. 10-year Treasury notes fell after today's nomination. The yield on the benchmark 10-year note rose 7 basis points, or 0.07 percentage point, to 4.45 percent at 4:20 p.m. in New York.
``The selloff was not an expression of dissatisfaction with the choice, but merely a reflection of the uncertainty going forward,'' said Bill Gross, chief investment officer at Pacific Investment Management Co. in Newport Beach, California. ``Although they might be satisfied with the choice, as am I, there's more uncertainty with Bernanke than there was with Greenspan, so risk premiums and higher yields is probably the result today.''
The Standard & Poor's 500 Stock Index rose 19.8, or 1.7 percent.
Inflation Targeting
Bernanke is an advocate of a strategy called inflation targeting where a central bank specifies a numerical goal for prices. The Federal Open Market Committee debated the strategy as early as February, and decided to defer the discussion.
Economists said Bernanke is unlikely to push the strategy immediately, in part because both Governors Roger Ferguson Jr. and Donald Kohn are opposed.
``This is obviously an issue on which knowledgeable and reasonable people can disagree,'' former Fed Governor Susan Phillips said in an interview. ``I don't think he will be in a position to move overnight. I think he has a strong belief this is a good addition to monetary policy and he'll try to persuade the committee that is the case.''
Handling Congress
Bernanke once named his personal range for desirable inflation. ``An inflation target in the range of 1 to 2 percent per annum for the core personal consumption expenditure'' price index ``might be a good initial choice,'' he said during his confirmation hearing as a governor on July 18, 2002. By that measure, inflation would already be at the top of his target for the 12 months ended in August.
As a Fed chairman, one of his tests will be gaining credibility on Capitol Hill. For much of the past decade, Greenspan received praise during his appearances, and congressmen rarely challenged the Fed's policies. Since he was sworn in at the CEA on June 21, Bernanke has testified twice before Congress and given five speeches on non-controversial subjects.
Greenspan ``has a great deal of credibility with financial markets at home and abroad, and also a great deal of credibility on Capitol Hill,'' said Michael Mussa, senior economist at the Institute for International Economics. ``A new Fed chairman will not instantaneously inherit the mantle.''
Bernanke has also shown he's agile under questioning from members of Congress, particularly on issues that Democrats support, such as a higher minimum wage.
Fed's Dual Mandate
Asked in May by Maryland Senator Paul Sarbanes, a Democrat, whether he would take back what he wrote in a 1991 textbook that increasing the minimum wage would have only minor economic drawbacks, Bernanke replied: ``No, senator, I've just become more uncertain.''
The Fed is unusual among the world's central banks in that it has two mandates: stable prices as well as sustained growth that will result in low unemployment. Bernanke will have to at least express concern about jobs and growth in his nomination hearing, and, if confirmed, during his semi-annual testimony in February.
Delivering on the expansion will be tricky, however.
Economists expect U.S. growth to slow, even as inflation expectations rise in the aftermath of a 51 percent increase in retail gasoline prices this year. Fed officials have made it clear they intend to keep leaning against inflation by pushing up the federal funds rate, even after Hurricanes Katrina and Rita hurt third-quarter growth prospects.
Selection Process
The president called Bernanke from Air Force One on Oct. 21 to discuss the nomination and actually offered him the post in the Oval Office at about 7:15 a.m. today, spokesman Scott McClellan said in an e-mailed statement.
The search began in late April, McClellan said, adding that Bush's nominating committee consulted academics, Wall Street executives, business leaders and lawmakers from both parties in Congress. He said the initial list had more than 20 names and that Bush met with the search committee several times and sought advice from Greenspan on the qualifications needed.
The nominating committee included Vice President Dick Cheney; Chief of Staff Andy Card; National Economic Adviser Al Hubbard; Liza Wright, an aide for presidential personnel; and I. Lewis ``Scooter'' Libby, Cheney's chief of staff.
Bernanke graduated summa cum laude from Harvard University in 1975 with a bachelor's degree in economics. He received his doctorate in economist from the Massachusetts Institute of Technology in 1979.
The economist became a ``star'' teacher at Princeton and will use those personal skills in managing the Fed staff and working with the governors, said Kenneth Rogoff, a professor of economics at Harvard who has known Bernanke for 30 years.
``You are getting a continuation as if Greenspan was there,'' said Rogoff, who also is a former chief economist for the International Monetary Fund. ``He has the confidence to continue Greenspan's policies, but as the world changes, react to those changes as thoughtfully as Greenspan would.''
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Enviado: 4/11/2005 18:19