WASHINGTON – In nominating an academic experienced in the ways of the Federal Reserve system, Ben Bernanke, to replace the central bank’s current chairman, Alan Greenspan, President Bush signaled that he is aiming for the policies that have characterized Mr. Greenspan’s 18-year stewardship to last long after Mr. Bush has left the White House.
Mr. Bush, who has fought accusations of cronyism for his recent nomination of White House counsel Harriet Miers to the Supreme Court, sent a wave of relief through the financial markets yesterday by naming Mr. Bernanke, 51, who is the chief economic adviser to the president. A former Princeton University professor and Federal Reserve Board governor, he will replace a man who is thought of by many as a force behind America’s growth and stability in the post-Cold War era.
Following the formal White House announcement by Mr. Bush, Mr. Bernanke said his first priority would be to maintain the monetary policies pursued by Mr. Greenspan, even as he suggested that those policies could differ somewhat under his leadership. The nomination is subject to Senate confirmation, with hearings in the Senate Banking Committee expected to end in time for a full Senate vote before Thanksgiving.
Mr. Greenspan’s term is set to expire at the end of January.
“Our understanding of the best practices in monetary policy evolved during Alan Greenspan’s tenure at the Fed, and it will continue to evolve in the future,” Mr. Bernanke said. “However, if I am confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years.”
The nomination drove up major stock indexes. Treasury bonds fell on the apparent belief that Mr. Bernanke would show greater tolerance for inflation than Mr. Greenspan, though treasuries fell on the news of Mr. Greenspan’s nomination, too.
Yesterday’s gains reflected optimism among traders who were hoping for stability above all else, economists said, as well as a strong sense of relief that Mr. Bush did not follow the model he used in nominating Ms. Miers, someone who was largely unknown to the major players in her field.
“I think it’s just a great choice,” an economist at the American Enterprise Institute,” Kevin Hassett, said. “There’s only one Fed chairman, and he really does have unique power, and recent experience suggests that the president might not have gotten this right.”
Mr. Bernanke was widely hailed by leading academics as having both the theoretical and practical experience to intelligently read and react to unexpected market forces – a key responsibility of the board chairman and one for which Mr. Greenspan has drawn praise.
“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,” a former vice chairman of the Federal Reserve and Princeton professor, Alan Blinder, said. “I could not be more delighted with the president’s choice. Those who don’t know Ben will soon be pleased,” Mr. Blinder, who served in the Clinton administration, said.
Not unlike supporters of Mr. Bush’s first nominee to the Supreme Court, John Roberts, supporters of Mr. Bernanke said the nominee’s educational background and professional credentials suggested an ability to manage people in a job that, in essence, involves guiding a board charged with steering federal interest rates through the purchase and sale of bonds. The board also controls liquidity, or money supply, a power it recently exercised in the wake of Hurricane Katrina.
Mr. Bernanke drew fire from some Democrats following the Katrina disaster for stating that Mr. Bush’s tax cuts should not be reversed. A Democratic member of the Banking Committee, Senator Schumer of New York, indicated Mr. Bernanke’s defense of the Bush tax cuts in the wake of disasters like
Katrina will be a focus of Democratic criticism at the confirmation hearing.
“There’s a great deal of confidence in monetary policy, but our fiscal policies inspire far less confidence,” Mr. Schumer said.”Chairman Bernanke’s recent comments seeming to favor extending tax cuts without paying for them are troubling. … In the next few years, the Federal Reserve chairman’s voice for fiscal restraint and moderation will be much needed. I await eagerly how he sees his role in this regard at the upcoming Banking Committee hearings.”
Mr. Hassett at the American Enterprise Institute said that Mr. Bernanke’s disposition makes him suitable for a job that Mr. Greenspan helped transform from a little-known regulatory body into an widely watched indicator of America’s current and future impact on domestic and global markets. He described Mr. Bernanke as not only academically qualified, but also reassuring personally.
“I think he’ll be very calm and very pleasant in the moments when we will need to be reassured,” Mr. Hassett said. “He won’t look nervous. I don’t think Fed policies are really going to change all that much. He’s every bit an inflation hawk as Greenspan, and I think Federal Reserve policy toward inflation will be aggressive. He’s also been a strong advocate of transparency.”
The Federal Reserve Board, which did not so much as make the details of its meetings public prior to Mr. Greenspan’s arrival in 1987, has become increasingly transparent in recent years, signaling its future moves as a way of adding a greater predictability to financial markets. Mr. Greenspan has demonstrated such transparency in the past year by authorizing incremental interest rate hikes over the past several months that were first announced in January.
Economists said Mr. Bernanke’s past statements and writings suggest that he could implement even greater transparency than Mr. Greenspan by announcing not only his intention to raise and lower rates but by announcing the precise amount of the adjustments he would make.
Mr. Bernanke is also expected to provide a contrast in style, if not in substance, to Mr. Greenspan, whose Delphic pronouncements were closely watched but seldom understood.
Mr. Bernanke outlined his views on the current state of the economy in an opinion piece published in the Wall Street Journal this summer. His recipe for growth and low inflation was increasing the skills of the workforce, keeping the economy “open to the world,” increasing energy security, reducing the federal deficit, keeping taxes low, curbing “frivolous” lawsuits, easing regulations, and ensuring that entitlement programs as placed “on a solid, long-term footing.”
A native of Augusta, Ga., who was graduated summa cum laude from Harvard University in 1975, Mr. Bernanke wrote a doctoral dissertation at the Massachusetts Institute of Technology in 1979 that is read by economists even today. Prior to his appointment, in June, as chairman of the President’s Council of Economic Advisers, Mr. Bernanke was a member of the Federal Reserve System’s seven-member board of governors. Mr. Bernanke served as a professor of economics and public affairs at Princeton since 1985.
Mr. Bush discussed the nomination with Mr. Bernanke Friday afternoon after consulting with Mr. Greenspan, a number of academics, and Wall Street executives, the White House spokesman, Scott McClellan, said. Mr. McClellan said the initial list included more than 20 individuals. In announcing his pick, Mr. Bush said he had been looking for a person of “impeccable credentials, sound policy judgment, and character.”
“Ben Bernanke is the right man to build on the record Alan Greenspan has established,” he said.
Not all Republicans in Washington were pleased with the choice. Senator Bunning of Kentucky issued a statement saying he opposes the nomination on the grounds that he does not think Mr. Bernanke is sufficiently independent.
But most Republicans are expected to line up behind the choice, according to economists familiar with Mr. Bernanke’s work.
“Ben Bernanke has impeccable academic credentials, and he agrees with the president’s economic philosophy,” a former policy adviser to Vice President Cheney, Cesar Conda, said. “His support for inflation targeting will bring certainty and predictability to the conduct of monetary policy at the Fed.”