Bush picks Fed board member to succeed Greenspan

10/25/2005

WASHINGTON - President Bush has nominated Ben Bernanke, 51, his own economic adviser, to replace Alan Greenspan, who retires Jan. 31 after more than 18 years as chairman of the Federal Reserve Board.

Unlike Mr. Bush's selection of his general counsel, Harriet Miers, for the Supreme Court, the choice of Mr. Bernanke to be the nation's top central banker created no immediate controversy. His name had been circulated among economists as a top contender for the position.

The Dow Jones Industrial Average soared more than 100 points within minutes of Mr. Bernanke's appearance yesterday in the Oval Office with Mr. Bush and Mr. Greenspan.

Reaction on Capitol Hill seemed mostly favorable, with confirmation by the Senate widely expected.

Sen. Ted Kennedy (D., Mass.) said Mr. Bernanke is well-qualified. But he added, "I hope that during his confirmation hearing he'll affirm his commitment to economic policies to help Americans who have had their finances unbearably squeezed by the rising cost of gas, education, housing, and health care."

And Mr. Bernanke is certain to be asked about his argument that the Fed should set a numerical goal for inflation. Mr. Greenspan has disagreed with him on grounds the central bank should have the most flexibility possible.

Mr. Bush said yesterday that naming the chairman of the Federal Reserve Board, known as the Fed, is one of a president's most important responsibilities. Once confirmed, the Fed chairman is independent and cannot be fired.

Noting that the Fed sets monetary policy, oversees the integrity of the banking system, and contains risk in financial markets, Mr. Bush praised Mr. Bernanke as a man of "intellectual rigor and integrity" who "commands deep respect in the global financial community."

Mr. Bernanke, he said, "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."

Mr. Bernanke is a graduate of Harvard, has a doctorate from the Massachusetts Institute of Technology, and headed the economics department at Princeton. Mr. Bush put him on the Fed board in 2002 but tapped him in June to be chairman of the White House Council of Economic Advisers.

Mr. Greenspan became Fed chairman after serving as former President Gerald Ford's chief economic adviser. Mr. Bush called him a "legend" for the confidence investors placed in him.

"The President has made a distinguished appointment in Ben Bernanke," Mr. Greenspan said. "Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation."

Mr. Bernanke in turn praised Mr. Greenspan's "collegiality."

"Alan Greenspan has set the standard for excellence in economic policy-making," he said.

"My first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years," Mr. Bernanke said.

Mr. Greenspan, appointed in 1987 by former President Ronald Reagan, was named to new terms by former Presidents George H.W. Bush and Bill Clinton.

In 1987, he was credited with averting a near collapse of financial markets when an October panic hit Wall Street. He promised to use the Fed's resources to back the system, and the panic subsided.

Much of the credit for the economic boom of the 1990s also was given to Mr. Greeenspan as well as for helping stabilize the economy after the terrorist attacks on the World Trade Center.

He often appeared on television, extolling good economic trends or jawboning about patterns he found worrisome.

If confirmed, Mr. Bernanke inherits an economy that Mr. Greenspan says is sound. Job creation has grown more robust, with an unemployment rate of about 5 percent.

But there are new worries about inflation and consumer confidence. The budget and trade deficits are growing. The economy is being buffeted by soaring energy costs and the effects of one natural disaster after another.

Economists are concerned that if the Fed raises interest rates too high too quickly, it could burst the housing bubble, which many think has sustained the economy in the wake of Hurricane Katrina. On the other hand, one reason for raising rates is to keep inflation in check.

Mr. Bernanke is known for encouraging the lifting of the veil of secrecy on Fed actions or "transparency." Partly as a result, the Fed now releases minutes of its meetings.

And like Mr. Greenspan, he has become known for colorful turns of phrase. He has been referred to as "Helicopter Ben," for saying that if necessary, he would fly over the country and throw money out of a helicopter to fight inflation. On another occasion, he said that if deflation became a problem, the United States has a printing press that permits it to "produce as many U.S. dollars as it wishes at essentially no cost."

John Engler, head of the National Association of Manufacturers, said, Mr. Bernanke has "superb credentials and an impeccable reputation."

Mr. Engler said he is pleased because he convinced Mr. Bernanke is concerned about energy costs and the importance of having major currencies market-determined. "Importantly, he has urged the Chinese government to move toward greater exchange rate flexibility."

Peter Morici, a professor at the Robert Smith School of Business at the University of Maryland, said Mr. Bernancke is a strong advocate of inflation targeting but added that could be an "unrealistic goal."

Mr. Bernanke recently testified on Capitol Hill indicating that he is no longer worried about short-term inflation.

"The stability in core inflation and inflation expectations does suggest that overall inflation is likely to return to levels consistent with price stability in coming quarters," he said, leading some to think he is ready to stop raising interest rates.

But ultimately, Mr. Morici said, Fed chairmen are like Supreme Court nominees.

"We really won't know how [Mr.] Bernanke will vote until he is on the job."

Mr. Bernanke and his wife Anna have two children, Alyssa and Joel.

Contact Ann McFeatters at:

amcfeatters@nationalpress.com

or 202-662-7071.