Washington – President Bush chose top White House economic adviser Ben Bernanke to replace the near-legendary Alan Greenspan as chairman of the Federal Reserve Board, the official in closest control of interest rates.
Bernanke instantly announced his first priority would be “to maintain continuity with the policies and policy strategies under the Greenspan era.”
Bush said his choice as the nation’s new central banker “commands deep respect in the financial community.”
And he lavished praise on Greenspan, 79, calling him a legend who “has shepherded our economy through its highs and its lows.”
The appointment is subject to Senate confirmation, and the president called for swift action.
Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, issued a statement saying “I am confident that this nominee will be thoroughly questioned but also well-received by all members of our committee.”
Wall Street’s reaction was mixed. Stocks jumped 60 points immediately after Bernanke’s name leaked out, but bonds and the dollar fell because of concerns that a Bernanke-led Fed might tolerate higher inflation.
It was the third time in as many years Bush has turned to the 51-year-old Bernanke for a sensitive economic post. The president named him to the Fed board in 2002, then made him chairman of the president’s Council of Economic Advisers this year.
“If I am confirmed by the Senate I will do everything in my power, in collaboration with my Fed colleagues, to help assure the continued prosperity and stability of the American economy,” said Bernanke, who holds degrees from Harvard University and the Massachusetts Institute of Technology and was chairman of Princeton University’s Department of Economics.
Greenspan, who became chairman in 1987, completes his term on Jan. 31. By naming a successor more than three months in advance, Bush appeared to be trying to clear the path for a smooth transition.
Greenspan did not speak at the brief announcement ceremony, a sure sign that his power is ebbing. For two decades, it has been his voice that has mattered most in Washington and many capitals around the world when it comes to key economy matters. His pronouncements, famously opaque, are scrutinized carefully for signs of future policy direction.
He issued a statement praising Bush for a “distinguished appointment,” and adding he has no doubt that Bernanke will “be a credit to the nation as chairman of the Federal Reserve Board.”
“Over the course of a career marked by great accomplishment, Ben 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,” Bush said.
Bernanke has “earned a reputation for intellectual rigor and integrity,” Bush said. “He commands deep respect in the global financial community. And he will be an outstanding chairman of the Federal Reserve.”
While Bernanke pledged continuity with his predecessor’s policies, the two men differ on whether the Fed should set targets for inflation. Bernanke thinks it should; Greenspan does not.
Otherwise they share a similar philosophy, so much so that while the younger man was at the Fed, market observers often looked at his speeches for insight into Greenspan’s thinking.
A summa cum laude graduate of Harvard in 1975, he received his doctorate from MIT in 1979.
During his years in Boston, he focused on the economic underpinnings of the Great Depression and the losing track record of the city’s beloved baseball team, the Boston Red Sox.
Ben Bernanke bio
Birth date: Dec. 13, 1953, in Augusta, Ga.
Education: B.A. in economics, 1975, Harvard University; doctorate in economics, 1979, Massachusetts Institute of Technology
Experience: June 2005-present, chairman, President’s Council of Economic Advisers; 2002-2005, member, 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
THE ASSOCIATED PRESS
FREQUENTLY ASKED QUESTIONS: THE FED
President Bush on Monday nominated Ben Bernanke to be chairman of the board of governors of the Federal Reserve System. A look at the system he would lead:
Q: What is the Federal Reserve System?
A: Sometimes called “the Fed,” the system is the independent, central bank of the United States. It sets the country’s monetary policy and supervises and regulates banking institutions.
Q: How does it affect my life?
A: Fed policy helps determine the interest rates people pay on their home mortgages and for other borrowing. It also influences the number of jobs the economy creates and inflation – how fast prices for goods and services increase. The Fed buys and sells U.S. Treasury and federal agency securities, lends money to member institutions, and determines how much banks must hold in reserve.
Q: What role does the chairman have?
A: The Fed chairman is the face of the Federal Reserve, serving as its spokesman and testifying before Congress. The chairman also manages the staff of the Federal Reserve Board and presides at board meetings.
Q: Why has the Fed been in the news so much lately?
A: It has increased the targeted federal funds rate – the interest rate banks charge each other – 11 times since June 2004 in an attempt to raise mortgage rates and slow down a housing market thought to be growing too fast.
Q: Who owns the Federal Reserve and how is it funded?
A: The Federal Reserve is a private, independent system, created by Congress, that does not make a profit. Its income is generated from interest on U.S. securities, interest on loans to banks and bank holding companies, and service fees it charges the institutions.
Q: Who runs the Fed?
A: The seven members of the board of governors of the system are nominated by the president and confirmed by the Senate. They serve 14-year terms and cannot be reappointed. The president nominates the chairman and vice chairman from among the board members and the Senate confirms them. They serve four-year terms but can be reappointed until their terms as governors expire. For 2005, the chairman earns $180,100, the same salary as House and Senate leaders. Other board members earn $162,100, the same as House and Senate members.
Q: How is the Federal Reserve structured?
A: Besides the board of governors, the system includes 12 banks that are its operating arms. Monetary policy is set through the 12-member Federal Open Market Committee, which includes the board and five of the reserve bank presidents.
Q: Can I open an account at one of these banks?
A: No. They are not commercial banks.
GANNETT NEWS SERVICE
