President's Top Economic Adviser Picked to Run Fed
President Bush on Monday named his chief economic adviser, Ben Bernanke, to succeed Alan Greenspan as chairman of the Federal Reserve.
The 51-year-old former Fed governor and Princeton University economist was considered a top candidate, in part, because of his close relationship with Mr. Bush, who named Bernanke to the Fed Board in 2002 and chairman of his Council of Economic Advisers earlier this year.
"The decisions of the Fed affects the lives and livelihood of all Americans," Bush said at the White House as Bernanke and Greenspan looked on. He said his choice "commands deep respect in the financial community."
A stand-out scholar from childhood -- he was a state spelling bee champion and scored highest on the SAT in South Carolina the year he took the test -- Bernanke first made his mark as an economist in the 1980s with his research on the roots of the Great Depression, which he once called the "holy grail of macroeconomics."
His conclusions about the devastating effects of falling prices on the economy led him to become an aggressive deflation hawk. He strongly voiced his concerns about a downard spiral in prices in November, 2002, in an influential speech shortly after he became a Fed governor.
Since then, Bernanke has repeatedly proposed that the Fed define a "Goldilocks" inflation target (about 2 percent annually) -- not to high nor too low. That contrasts with Greenspan's more vague goal of finding a neutral inflation level that neither promotes nor hinders business investment and consumer spending.
Compared to Greenspan's restrained, often-cryptic assessments of the economy, Bernanke's three-year tenure as a Fed governor, from 2002 until last May, has shown him to be both outspoken and plain-spoken with his views on inflation and the economy. He has said he wants to demystify the Fed's communications with the outside world, most importantly by "focusing and anchoring expectations." Shortly after his appointment as a Fed governor, he told a gathering of economists that "making the investment now in greater transparency about the central bank's objectives… could pay increasing dividends in the future."
At a time when the economy has been battered by hurricanes, rising energy prices and a ballooning federal deficit, many economists believe that Bernanke's approach would serve the country well. In a recent poll of 37 economists conducted by the Wall Street Journal, Bernanke received a 7.6 (out of 10) rating for his ability to lead the Fed, beating out all but one of the other likely candidates for the Fed chairmanship.
At first blush, investors appeared equally confident of the economy's prospects under Mr. Bernanke guidance, pushing the Dow Jones Industrial Average up more than 169 points on the day his appointment was announced -- one of the year's biggest stock market rallies.
"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 told the press gathering.
In a bow to his predecessor, he said Greenspan "set the standard for excellence" in monetary policy, and promised that his first priority "will be to maintain continuity with the policy and policy strategies under the Greenspan era."
If confirmed by the Senate, Bernanke will take over as Fed chairman when Greenspan retires on January 31, 2006.
The Associated Press contributed to this report.
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