Bernanke stresses 'consensus' on price stability in first public address

In his first public address as chairman of the Federal Reserve, former University economics professor Ben Bernanke stressed the importance of price stability in promoting economic growth in a global environment of increasing oil prices and international competition.

Bernanke, who taught at the University for 17 years and served as chair of the economics department, returned to campus Friday night as part of the Wilson School's 75th anniversary conference on government service, "In the Nation's Service: Changes and Challenges."

In his speech, delivered in Richardson Auditorium, Bernanke drew on historical examples to demonstrate how U.S. stabilization policy has evolved into today's "modern consensus."

"Price stability supports both strong growth and stability in output and employment," Bernanke said. He also said that stable prices and maximum employment would contribute toward the Fed's third goal, moderate longterm interest rates.

Though Bernanke never said the words "inflation targeting," he left little doubt that this policy will be his next step in pursuit of economic stabilization and greater transparency at the Fed.

"When he uses the words 'price stability,' he essentially means inflation targeting between zero and two percent," economics professor Elizabeth Bogan said.

Bogan said she believes Bernanke will become more explicit about setting an inflation target in the near future.

"What he's doing is setting the stage for that to look like a little step, which is typical of how smart and clever he is," she said.

In a speech focused largely on economic history, Bernanke said that inflation and inflationary expectations from the 1970s demonstrated the importance of maintaining steady prices.

He praised former Fed chairmen Paul Volcker '49 and Alan Greenspan for their commitment to price stability to contain the rampant inflation of the 1970s.

Bernanke said Greenspan's policy of transparency has been integral in demonstrating the Fed's institutional commitment to price stability.

While most politicians don't doubt the new chairman's commitment to stability, some critics question his nonpartisanship. Bernanke is a registered Republican and served most recently as chairman of President Bush's Council of Economic Advisors.

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But Bogan dismissed such concerns.

"He's just not a partisan kind of guy," she said. "He wants to do what's best for the economy." She speculated that Bernanke's ties to the Republican Party are likely due to the party's stance on economic efficiency and free markets.

The new chairman's return to his home institution to address a capacity audience of former colleagues, alumni and students emphasized his roots as an academic, not a partisan politician, Bogan added.

Bernanke left the University in 2002 to serve as a member of the Fed's board of governors before becoming chairman of the White House Council of Economic Advisers in June 2005.

Wilson School concentrator Wamiq Chowdhury '06, who attended the lecture, said the chairman's speech was "short and sweet." He wondered whether Bernanke will be able to fill Greenspan's shoes as a policymaker.

"I'm really interested to see if he ends up being as respected as Alan Greenspan," Chowdhury said. "Greenspan got to the point where he was so respected that nobody ever thought about him being influenced by politics ... in terms of economic policy, he was more powerful than the president."

Some students wished Bernanke had focused more on his transition from academics to the government.

"I would have been interested in hearing more about how the lessons he learned as a professor influenced his work in the policy world," Jeanne Zelmati '07 said.

Following the speech, Wilson School Dean Anne-Marie Slaughter '80 said she hoped that this would not be Bernanke's last trip back to the University.

"We would welcome you back as professor Bernanke anytime," she said.