Bush picks Bernanke to lead Fed

President Bush has chosen Ben Bernanke, the top White House economic adviser and an economics professor who recently resigned from the University, to succeed Alan Greenspan as the next chairman of the Federal Reserve.

Bernanke, who was widely considered the favorite for the post, now faces what many observers predict will be a smooth Senate confirmation. If confirmed, he will take the reins at what is arguably the world's most influential economic policy job on Feb. 1, when Greenspan, who held the post for more than 18 years, steps down.

"Ben Bernanke is the right man to build on the record Alan Greenspan has established," Bush said Monday afternoon at an announcement in the Oval Office with Bernanke and Greenspan at his side.

"He's built a record of excellence as both an academic and policymaker," Bush added, citing in particular Bernanke's service as chair of the University's economics department and founder of the Bendheim Center for Finance. Bernanke resigned from the University in July, after 20 years on the faculty.

Speaking after the president Monday afternoon, Bernanke sought to reassure investors and the public, saying he would work to "ensure the continued prosperity and stability of the American economy." Neither Bush nor Bernanke took questions after the announcement, and Bernanke declined via his chief of staff to comment further.

In a statement, Greenspan described Bernanke, who served as a governor at the Fed before taking up his White House job, as a "distinguished appointment" and an individual with "superb academic credentials and important insights into the ways our economy functions."

The choice of Bernanke drew praise from his Princeton colleagues and Capitol Hill. Investors also seemed to show confidence in Bush's pick, with all major stock indexes rising after the announcement.

"I think it's just a superb appointment," economics professor Burton Malkiel GS '64 said in an interview. "He has just terrific judgment and is just incredibly well qualified for the position and I must say that I am absolutely delighted that the President has chosen him."

"This is not a Harriet Miers," Malkiel added, referring to the president's nominee to the U.S. Supreme Court, who is facing opposition for her perceived lack of qualifications and experience.

Alan Blinder '67, an economics professor and former Fed vice-chairman under Greenspan, also praised Bernanke. "By virtue of his incredible knowledge of monetary theory and history, his honesty and integrity, his cool temperament, his attention to detail and his previous experience at the Fed, Ben Bernanke has all the ingredients to be a great Fed chairman," Blinder said in a statement.

While long considered the favorite for the Fed's top job, Bernanke was not the only candidate in the running to replace Greenspan. In a report earlier this month, The Wall Street Journal also singled out Harvard professor Martin Feldstein and current Fed officials Donald Kohn and Roger Ferguson as frontrunners. Glenn Hubbard, the architect of the Bush administration's tax cuts, has also been mentioned in other forums.

As part of its report, the Journal surveyed 37 economists, asking them to rate their level of confidence in the ability of eight potential contenders to handle the Fed chairmanship. Bernanke and Kohn were the top performers, both with scores of 7.6 out of 10. Feldstein and Ferguson, who had the next-highest scores, both received 7.2.

Inflation targets

Though Bernanke is expected to continue Greenspan's largely successful monetary policy, he is also expected to chart a new course for the Fed's inflation strategy. Over the years, while Greenspan has moved toward supporting what is called an "implicit" inflationary target — perceived as allowing the Fed greater flexibility — he has avoided setting a hard number, or an "explicit" target, for what inflation should be.

In 2000, while still at Princeton, Bernanke co-wrote an oped in The Wall Street Journal titled "What Happens When Greenspan is Gone?" In the article, he argued that "successful inflation targeting requires that the central bank and elected officials make a public commitment to an explicit numerical target level for inflation."

In his brief remarks on Monday, Bernanke hinted that changes may be forthcoming.

"Our understanding of the best practice in monetary policy evolved during Alan Greenspan's tenure at the Fed, and it will continue to evolve in the future," he said, adding, however, that his "first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years."

This point was not lost on Capitol Hill. In a statement, Rep. Jim Saxton (R-N.J.), chairman of the Joint Economic Committee, said, "If the Fed can be viewed as edging toward inflation targeting in recent years, this nomination would appear to mark further progress in that direction."

"I believe Dr. Bernanke will be an able successor to Chairman Greenspan," Saxton added.

But Senate Minority Leader Harry Reid (D-Nev.), who recently blasted Greenspan as "one of the biggest political hacks we have here in Washington," was more measured in his reaction to the nomination.

"I look forward to the confirmation hearings to learn more about Mr. Bernanke's views on how the Federal Reserve should steer our economy free from political influence and interference," Reid said in a statement.

With academic credentials almost beyond question and sufficient practical experience under his belt, observers agree that Bernanke, who has also been a strong advocate for more transparency at the Fed, is well placed to implement monetary policy reforms.

"He has a well-structured vision about how to conduct monetary policy," said Alex Cukierman, a visiting economics professor who will teach a course on money and banking in the spring.

An independent thinker

Bernanke, a registered Republican, has also developed a reputation as an independent thinker who is not afraid to speak his mind.

"I think Ben is so much more analytical than Greenspan, and probably more of a straight shooter, unlikely to be influenced by political fads," economics professor Uwe Reinhardt said in an email. "Greenspan's reputation had been that he often follows strategies that seek to curry favor with the White House."

Harvey Rosen, who was Bernanke's predecessor as chairman of the Council of Economic Advisors (CEA) before returning to his teaching post at the University, also emphasized Bernanke's independence.

"Bernanke is not in any way dogmatic," Rosen said in a statement. "He is a practical economist, whose policy recommendations will be determined by the nature of the issues at hand and by the available data."

In April, when the president chose Bernanke to lead the CEA, some analysts noted that the move provided an opportunity for the administration to evaluate Bernanke's suitability for a higher-level position in the future.

At the time, some observers, including New York Times columnist and University economics professor Paul Krugman, expressed concern that Bernanke's reputation for independence would be compromised when he joined the White House. Krugman posited that Bernanke might become "damaged goods" after working directly for the Bush administration.

Ostensibly, however, Bernanke's reputation hasn't suffered after his stint at the White House. "I've actually read the speeches that he's given as Chairman of the Council of Economic Advisors and I did not think that he has been compromised at all," Malkiel said, adding that he is optimistic for the Fed's future.

"I think this will be an appointment that will very much live up to our [University] motto and, in fact, our expanded motto, because the chairman of the Federal Reserve is a major international as well as national figure," Malkiel added. "It's Princeton in the nation's service and the service of all nations."