Following Alan Greenspan is a daunting prospect, but the man nominated to succeed him as chairman of the Federal Reserve Board seems eminently qualified. It’s a welcome concept at a time when the Bush administration doesn’t need to unsettle the financial markets or the Senate.
In naming economist Ben S. Bernanke, President Bush sought to send a message of stability and continuity. The president hasn’t said anything yet about Bernanke’s religion – that alone sets the nomination apart from that of Harriet Miers.
The Fed chairmanship is often thought to be the second most influential job in Washington. The Federal Reserve is responsible for managing the nation’s money supply and fighting the battle against inflation. The board sets the federal funds rate – the interest rate that banks charge one another for loans. This rate ultimately determines how much banks will charge their customers for loans. The Fed is an independent institution that shapes economic policy by acting outside the White House and Congress.
“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,” Bernanke pledged.
He is a Harvard-trained economist who taught at Princeton and then served as a Fed governor. In June he was named chairman of the president’s Council of Economic Advisers and so he has been, briefly, the president’s chief economic adviser.
Greenspan was named Fed chairman by President Reagan in 1987 and has guided the Fed through a series of crises, including the stock market crash of 1987, the savings and loan crisis and the high tech investment bubble that burst in 2001. Throughout his tenure, the U.S. economy has seen only modest inflation, and the Fed has been raising short-term interest rates since June 2004.
The Fed transition takes place during a rough economic climate, with an overheated housing market and high energy prices threatening to feed inflation. The growing trade deficit – and huge budget deficit – are putting pressure on the dollar.
Greenspan, 79, plans to leave in January and President Bush wanted to make an early nomination in order to smooth the Fed transition. At the same time, he is battling to salvage the nomination of Miers to the Supreme Court and couldn’t afford to choose a Fed chairman whose qualifications would raise public concern or doubts among financiers. Bernanke’s resume, at least, looks impressive at the outset, and the stock markets responded positively on Monday, with the Dow rising nearing 170 points.
