- The Washington Times - Tuesday, October 25, 2005

President Bush yesterday named Ben Bernanke, White House economic adviser and a respected former central banker and Princeton professor, to succeed Alan Greenspan as chairman of the Federal Reserve.

Mr. Bernanke, with Mr. Greenspan and Mr. Bush at his side, pledged to continue Greenspan policies that have promoted nearly two decades of growth while nudging inflation to its lowest levels in a generation — a move that won applause on Wall Street.

The Dow Jones Industrial Average soared 170 points to 10,385, aided by further declines in oil and gas prices as Hurricane Wilma steered past Gulf of Mexico oil fields and plowed into southern Florida.

“Ben Bernanke is the right man to build on the record Alan Greenspan has established,” said Mr. Bush, stating both his reason for choosing the head of his Council of Economic Advisers and the reason why the nomination won immediate and broad acclaim.

Mr. Bernanke, 51, gained recognition while serving on the Fed for penning well-versed speeches on the dangers of deflation and the need for clarity in steering the course of interest rates and the economy.

This year, he co-authored an opinion piece in the Wall Street Journal on what should be done when Mr. Greenspan, 79, retires from the Fed at the end of his term in January.

“The Fed needs an approach that consolidates the gains of the Greenspan years and ensures that those successful policies will continue — even if future Fed chairmen are less skillful or less committed to price stability than Mr. Greenspan has been,” he wrote.

Mr. Bernanke has departed from Mr. Greenspan noticeably on only one issue. He advocates establishing an inflation target for the Fed, but has indicated he would not adopt such a rigid policy without the assent of other board members, who disagree with him on that point.

Some economists worry that requiring the Fed to adhere to an inflation target of 1 percent or 2 percent might force the central bank to sometimes sacrifice economic growth to achieve lower inflation.

Yesterday, Mr. Bernanke addressed those fears. “If I am confirmed by the Senate, I will do everything in my power … to help assure the continued prosperity and stability of the American economy,” he said.

Mr. Greenspan lauded Mr. Bernanke’s “superb academic credentials and important insights into the ways our economy functions.”

Sen. Richard C. Shelby, Alabama Republican and chairman of the Senate Banking, Housing and Urban Affairs Committee, said Mr. Bernanke would be “well-received” by the panel, which will hold hearings on the nomination before Congress adjourns.

Democrats were open to the nomination, while indicating they will closely question Mr. Bernanke’s views on budget matters — areas in which Mr. Greenspan gained wide influence because of his independence and even-handedness toward both parties.

“We need a careful, nonideological person who understands that the Federal Reserve’s main job is to fight inflation, and Ben Bernanke seems to fit that bill,” said Sen. Charles E. Schumer, New York Democrat and committee member.

Mr. Schumer noted that, unlike Mr. Greenspan, Mr. Bernanke has advocated extending Mr. Bush’s tax cuts without paying for them. But he said Mr. Bernanke assured him in a conversation yesterday that he was speaking as a White House economic adviser and might take a different view as Fed chairman.

Fed watchers praised Mr. Bernanke’s credentials, but they noted that any new chairman will lack the experience Mr. Greenspan gained through 18 years at the Fed’s helm. Mr. Bernanke is sure to be tested through economic and financial crises like those that marked and shaped Mr. Greenspan’s career.

“Bernanke is not a strong markets person” with Wall Street experience, said Robert Brusca of FAO Economics, but “neither was Greenspan when he took over at the Fed. So, on this score, he will have to earn his respect.”

Mr. Greenspan encountered his first stock market collapse in October 1987, the year he was appointed by President Reagan. The Fed chairman responded by flooding the markets with money, a move he repeated after financial collapses precipitated by crises in Asia and Russia, the collapse of the tech stock bubble, and the September 11 terrorist attacks.

Although Mr. Greenspan has been called a “legend” and “the greatest central banker who ever lived,” not everyone agreed with his tendency to rush to the rescue even when financial collapses largely were the result of poor judgment or overspeculation by investors.

Critics point to what may be a monumental bubble in the housing market, nurtured by the extremely low interest rates engineered by Mr. Greenspan since 2001, as an example of the harm caused by overindulgence.

“History will treat Mr. Greenspan unkindly as the bartender-in-chief for the New Age economy, which begat the New Age bubble,” said Paul McCulley, who manages the world’s largest bond fund at Pacific Investment Management Co.

If Mr. Bernanke follows in Mr. Greenspan’s shoes, he will move quickly to cut interest rates as soon as the housing market shows signs of a collapse, thus reflating the bubble and keeping the economy on a kind of artificial respiration, Mr. McCulley said.

Whether Mr. Bernanke becomes as outspoken and influential in Washington politics as Mr. Greenspan remains to be seen. Fed chairmen before Mr. Greenspan avoided wading into political disputes between the parties, and Mr. Bernanke might prefer to do the same.

“Although he is often said to be a libertarian Republican, in reality he has been very private about his political views, and any political leanings are difficult to detect from his writings or speeches,” said Societe Generale economist Stephen Gallagher, who sees Mr. Bernanke as highly independent.

“His actions have been nonpartisan as well: As chairman of Princeton’s economics department, Bernanke hired Paul Krugman, who is an outspoken Bush critic. Bernanke believes that independence of the Federal Reserve is paramount.”



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