- The Washington Times - Tuesday, November 15, 2005

Ben Bernanke, President Bush’s pick to be the next Federal Reserve chief, yesterday suggested that — unlike Alan Greenspan — he will avoid wading into political controversies.

Speaking at a confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee, which is expected to easily approve his nomination to succeed Mr. Greenspan in January, Mr. Bernanke signaled a return to the policy of earlier Fed chairmen who steered clear of political disputes on Capitol Hill to maintain their independence and credibility.

“I’m going to begin now, I think, a practice of not making recommendations on specific tax or spending proposals,” said the current chairman of the White House Council of Economic Advisers, who Mr. Bush tapped in his first term to serve on the Fed’s board.

Mr. Bernanke specifically avoided advising the committee on whether Congress should adopt budget rules requiring offsets for tax cuts or spending increases to avoid increasing the budget deficit.

Mr. Greenspan, by contrast, strongly and frequently advocated renewing the “pay-as-you-go” rules on both tax and spending initiatives that were in place during the 1990s, which he credited with helping to produce balanced budgets and surpluses at the end of the decade.

While tiptoeing around such issues yesterday, Mr. Bernanke listed what he called “very serious long-term issues” looming over the economy, most of which would require action by Congress to be resolved.

He added the fast-growing cost of health care — including the federal Medicare and Medicaid programs — to a list of issues frequently addressed by Mr. Greenspan, including reducing the nation’s budget and trade deficits and improving education to maintain U.S. competitiveness.

Many Fed watchers had predicted Mr. Bernanke would adopt a lower profile on political issues than Mr. Greenspan, whose pronouncements on everything from reforming Social Security to cutting income taxes were sought eagerly by lawmakers in both parties. Those who won Mr. Greenspan’s endorsement of a proposal usually treated it like a trophy.

Alan Blinder, a former Fed governor, said Mr. Greenspan was unique in earning the status of “national guru” as a result of his nearly two decades at the Fed’s helm and, many years before that, advising presidents and Congress on Social Security and other economic and social issues.

On topics under the Fed’s purview, Mr. Bernanke said he would continue to speak plainly while mostly echoing Mr. Greenspan’s views. He said Congress must reform the federal entitlement programs for the elderly “sooner rather than later” as baby boomers prepare to retire.

The trade deficit is not an urgent problem as long as foreign investors continue to finance it by purchasing U.S. assets, he said, but it should be reduced gradually over time.

Mr. Bernanke mentioned the overheated housing market as another concern, but said he expects home sales and prices to level off as interest rates continue to rise.

China should do more to loosen the restrictions on its currency that prevent the yuan from rising against the dollar, he said, but the Asian giant should not bear all the blame for the burgeoning trade deficit with the United States.

Mr. Bernanke has pledged to maintain continuity with Mr. Greenspan’s widely respected policies and stressed that he will be flexible like Mr. Greenspan in responding to new developments in the economy.

On one issue, however, Mr. Bernanke continued to take a different tack: He said the Fed should adopt a specific target for inflation so that financial markets can more accurately anticipate the Fed’s actions.

The Fed now has an informal target of between 1 percent and 2 percent inflation, but Mr. Bernanke said he would move to make that official if he gains a consensus for such a move on the Fed’s monetary policy committee.

Several senators questioned whether that would depart from the Fed’s statutory mandate of maintaining growth in the economy and full employment as well as fostering price stability.

Mr. Bernanke stressed that he believes in the dual goals of healthy growth and low inflation, and in the idea that one need should not be sacrificed to achieve the other.

An inflation target would keep inflation expectations well anchored without being a “rigid or mechanical rule” to slavishly follow, he said.

Publicly identifying the Fed’s inflation goals would serve to build on Mr. Greenspan’s efforts to make the Fed more open and communicative with financial markets, he said.

“Monetary policy is most effective when it is coherent, consistent and predictable as possible, while at all times leaving full scope for flexibility and the use of judgment.”

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