Investors, economists and members of Congress welcomed President Bush's selection Monday of Ben Bernanke to head the Federal Reserve, expecting...
WASHINGTON — Investors, economists and members of Congress welcomed President Bush’s selection Monday of Ben Bernanke to head the Federal Reserve, expecting him to stay the course set by retiring Fed Chairman Alan Greenspan.
Bernanke, a widely respected economist who serves as Bush’s chief economic adviser, said his first priority would be to “maintain continuity with the policies” established during Greenspan’s 18 years as the head of the nation’s banking and monetary system.
Bernanke, 51, is expected to have little trouble winning Senate confirmation before Greenspan’s planned retirement on Jan. 31.
In a statement, Sen. Charles Schumer, D-N.Y., said: “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.”
Schumer sits on the Senate Banking Committee, which will hold hearings on Bernanke’s appointment before the full Senate’s confirmation vote. The Senate will act on the nomination before adjourning in December.
What is the Fed?
The Federal Reserve sets interest rates on bank loans, which helps determine the rates people pay on their home mortgages and consumer and business loans. It influences the number of jobs the economy creates, and the rate and speed of inflation. It buys and sells U.S. Treasury and federal agency securities, loans money to member institutions, and determines how much banks must hold in reserve.
Committee Chairman Sen. Richard Shelby, R-Ala, called Bernanke “a highly qualified individual.”
After many years of stellar academic work, most recently as chairman of the economics department at Princeton University, Bernanke became a member of the Fed’s Board of Governors, where he served from August 2002 until June, when he became president of the White House Council of Economic Advisers.
Like Greenspan, Bernanke views inflation as a major threat to economic growth and favors keeping it strictly in check, so it doesn’t distort investment decisions and undermine economic stability, as in the 1970s.
Although most of its work is largely out of public view, the Federal Reserve Board touches the life of every American. By controlling short-term interest rates and the nation’s money supply, the board can encourage economic growth or tap the brakes to restrain inflation, the rate at which prices rise across the economy.
Bernanke (pronounced ber-NAN-kee) promised to use his appointment to “help ensure the continued prosperity and stability of the American economy.”
With big shoes to fill, Bernanke would take over the Federal Reserve chairmanship from Alan Greenspan on Feb. 1 if confirmed by the Senate.
Age: 51; born Dec. 13, 1953, in Augusta, Ga.
Education: B.A. in economics, 1975, Harvard University; Ph.D. in economics, 1979, Massachusetts Institute of Technology.
Experience: June 2005-present, chairman, President’s Council of Economic Advisers; 2002-2005, member, the Board of Governors of the Federal Reserve System; 1996-2002, professor and chairman of the Economics Department at Princeton University; 1985-2002, economics professor, Princeton University.
Family: Wife Anna; two children.
Source: The Associated Press
Critical time for Bush
Previously, the White House had indicated Bush would not choose a new Fed chairman until early November. Bush said earlier this month he had not seen a shortlist of candidates.
The choice of Bernanke comes at a critical moment for Bush, whose approval ratings have fallen to the lowest point of his presidency. It also comes amid controversy over the leak of a CIA agent’s identity and over qualifications of Supreme Court nominee, Harriet Miers, once Bush’s personal attorney.
“I’m just grateful he didn’t pick his personal banker,” quipped Bruce Bartlett, a Bush critic, conservative economist and Treasury official in the administration of the president’s father.
The president’s mounting problems were a factor in both the choice of Bernanke and the timing of the announcement, said several GOP strategists and independent analysts who have been tracking the process.
His nomination came with Greenspan’s blessing.
“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 as chairman of the Federal Reserve Board,” the departing Fed chairman said.
Bernanke, the son of a small-town pharmacist in Dillon, S.C., has a long record of academic achievement. He won the state spelling bee in the sixth grade, taught himself calculus because his high school didn’t offer it and outscored every other student in the state when he took the college-admission test.
He graduated with highest honors from Harvard University in 1975 and earned a Ph.D. in economics from the Massachusetts Institute of Technology four years later.
He made his reputation as a professor at Princeton, specializing in the analysis and history of monetary policy. His study of the Great Depression concluded that its severity was caused not by financial markets but by the Fed’s errant monetary policy.
He’s co-author of a popular college textbook, “Macroeconomics.”
Adam Posen, who co-authored a 1999 book on inflation with Bernanke, called him one of the top economists of his generation.
“There are plenty of manipulative and egomaniacal people in the economics profession, particularly among people who thought they might become Fed chairman. Nobody says that about Bernanke,” said Posen, a former Fed economist and now a senior fellow at the Institute for International Economics in Washington. “This is the real thing, and he is just a good guy.”
While Bernanke paid tribute to Greenspan in accepting the nomination as Fed chairman, he also signaled that he wouldn’t be a Greenspan clone. Unlike Greenspan, Bernanke has suggested the Fed should set clear targets for inflation and manipulate interest rates to meet them, rather than leaving such rate decisions so much to subjective judgment.
John Lonski, chief economist for Moody’s Investor Service in New York, said Bernanke may be a bit more dovish about inflation than Greenspan. Under Greenspan, the Fed has raised interest rates 11 times since June 2004 in an aggressive pre-emptive strike against inflation.
Another increase is expected at the board’s next meeting next Tuesday.
Additional information is from the Los Angeles Times.