Some people get to a certain stage in life and chuck it all away for a midlife career switch. For others, luck and happenstance play a big part in professional development.
And then there is Ben Bernanke, whose entire career has led up to this moment.
Bernanke, 52, takes over Wednesday as chairman of the powerful Federal Reserve and inevitably will be measured against the larger-than-life standard set by Alan Greenspan over 18-1/2 years spanning four presidents, two recessions and numerous global crises.
While it could take years for Bernanke to prove his mettle, the former Princeton University economist is probably as well prepared as anyone who has ever stepped into the job of central bank chief.
“These are very large shoes to fill,” said former Fed. Gov. Edward Gramlich. “But I think if anybody can fill them, it’s Ben.”
From his undergraduate career studying economics at Harvard, to his years of research and writing on monetary policy and nearly three years as a Fed governor, Bernanke has spent half his life preparing for the 14-year term he is about to begin.
Inevitably, he will be tested. Greenspan had been at the Fed for only two months when the stock market crashed in October 1987, giving him one of the toughest challenges of his career as financial markets nearly ground to a halt. When Paul Volcker took over in 1979 he had to move quickly as an inflation-wracked economy headed toward recession after the abbreviated 17-month tenure of William Miller.
It is impossible to predict what crisis Bernanke will confront, and when, but he faces a more immediate challenge as Fed policy-makers try to decide when to pause or end their long campaign to raise interest rates.
The Greenspan-led Fed has raised short-term rates steadily since June 2004, pushing them up a quarter-percentage point at each of 13 straight meetings in a bid to keep a lid on inflation yet without choking off growth. Another quarter-point is considered certain at Greenspan’s final meeting Tuesday, with yet another one possible at Bernanke’s first meeting March 28.
But with the economy showing some signs of slowing, and concerns rising about a downturn in housing, there is considerable uncertainty over how the Fed should play out the end of its rate-hike cycle.
“The easy job has been done, unfortunately,” said former Fed governor Laurence Meyer, vice chairman of Macroeconomic Advisers. “Mistakes are more likely when you get closer to the end, not knowing where the end is, and that’s where we are.”
Nobody questions Bernanke’s background in monetary policy, which includes years of research into the causes and lessons of the Great Depression, an economic disaster that represents the biggest policy failure in the Fed’s 93-year history. In fact it is Bernanke’s many years in the ivory tower of academia that have sparked some of the biggest questions, about whether he will be able to communicate effectively with Wall Street.
Gramlich thinks the issue is overblown. While Bernanke does not have the extensive real-world business experience that Greenspan brought with him to the post after a career as a consultant and White House aide, he does have the advantage of nearly three years as a Fed governor plus a brief period as a top economic adviser in the Bush White House.
“What he doesn’t probably have is personal knowledge of the big players on Wall Street,” said Gramlich. “I’m not sure that matters as much as it used to. You’ve got derivatives markets with trillions of dollars, and nobody knows who the players are. … But Bernanke has studied these things carefully. So I actually don’t think there would be a problem.”
And Alan Blinder, another former Fed governor and a colleague of Bernanke’s at Princeton, said Bernanke appears to have the temperament to handle the inevitable crisis.
“The only honest answer is that with any individual you never know know until they are tested,” Blinder said. “The one thing I do know is he shares with Greenspan the trait of being calm and not very excitable, which is a good thing.”
Bernanke’s plain and direct speaking style probably will be a relief to anyone who has ever tried to untangle some of Greenspan’s tortuous and sometimes inscrutable pronouncements. Bernanke’s landmark 2002 speech on the potential for widespread deflation, or falling prices, is a model of getting straight to the point.
After a brief discussion of the Japanese experience with the problem, Bernanke sums up: “So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small.”
He then goes on to explain why and finally outlines what became known as “the Bernanke option” for dealing with the potential problem, which involved the possibility of the Fed buying up government securities once short-term interest rates were near or at zero.
Bernanke will get an early opportunity to showcase his style of speaking about the economy Feb. 15, when he is scheduled to appear before the House Financial Services Committee to deliver the Fed’s semiannual report to Congress on the economy.
While his plain speaking may be appreciated by investors and laypeople following the economy, Meyer said Greenspan’s convoluted style of speech may have stemmed in part from his unique style of economic forecasting, which relied on anecdote, instinct and an encyclopedic grasp of economic indicators.
“His model was fundamentally different than everyone else’s,” said Meyer. “That is what we’ll miss. Bernanke is a more conventional thinker.”
Economists expect Bernanke to put his own stamp on the Fed relatively quickly, perhaps by persuading fellow policy-makers to adopt his plan for an explicit inflation target, a move that would increase transparency but was opposed by Greenspan because it would limit the ability to respond to conditions more flexibly.
Analysts also will be watching closely to see whether Bernanke gets the unanimous or near-unanimous backing of his colleagues on setting policy, as Greenspan almost always did.
“Ben is a persuasive guy, and he will have the respect of the committee, but he might not get their votes as much as Alan did,” said Gramlich.
In his book “A Term at The Fed: An Insider’s View,” Meyer described Greenspan’s method of keeping dissension to a minimum at policy-setting meetings, either by meeting with members beforehand or by clearly stating his preferred outcome to influence the debate.
Meyer wonders whether Bernanke will try to establish that type of iron-fisted leadership immediately or instead open the floor for a more free-wheeling discussion.
“When (Bernanke) was a member, did he probably wish for a committee that was more democratic, where decisions were made at the meeting?” Meyer said. “I don’t think there is any question the answer is yes. I think it’s a case of be careful what you wish for.”
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