President Bush Monday nominated Ben Bernanke, head of his Council of Economic Advisers, to succeed Alan Greenspan as chairman of the Federal Reserve, often described as the nation’s second-most powerful job.
Bernanke, 51, a former Fed governor and Princeton University economics professor who only took over his current White House job in June, long had been considered the favorite for the central bank post.
“He has earned a reputation for intellectual rigor and integrity, he commands deep respect in the global financial community and he will be an outstanding chairman of the Federal Reserve,” Bush said at an afternoon White House ceremony, where he was flanked by Bernanke and Greenspan.
Bernanke said that if confirmed by the Senate his “first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years.”
Although Greenspan said nothing at the brief White House appearance, his shadow looms large after an 18-year tenure in which he has come to embody the powerful central bank, moving financial markets with his comments and actions and serving as the top interpreter of the nation’s economic condition.
President Bush called Greenspan, 79, a “legend” who has “dominated his age like no central banker in history.”
In choosing the widespread favorite, Bush has taken a more conventional path after a series of recent stumbles including the poorly received nomination of Harriet Miers for the Supreme Court.
“The Harriet Miers fiasco really prompted them to go with the safest choice, the one the markets were expecting,” said Greg Valliere, chief strategist for Stanford Washington Research Group Stanford Washington Research Group. “He couldn’t get too exotic with this pick.”
Stock prices surged after news of the Bernanke nomination emerged in wire reports shortly before noon ET as the lingering uncertainty over the nomination was lifted. The Dow Jones industrial average ended with a gain of nearly 170 points, its strongest performance in six months. Bond prices fell, sending long-term interest rates slightly higher.
While bond investors might be expressing some skepticism, there is little question that Bernanke is well-qualified for the new job.
“He is trained for the job, he worked as a governor and when he was governor he spent a lot of time looking at practical issues around monetary policy,” said Ethan Harris, chief U.S. economist at Lehman Bros. “He has hung around the Fed for many years as an adviser. He certainly has the respect of many in the institution, so the handoff is pretty smooth.”
Financial markets and Bush’s other constituencies should be satisfied with the choice of Bernanke. A registered Republican who has advocated for President Bush’s economic policies over the past four months, Bernanke has a reputation as more of a technocrat than ideologue.
“In my opinion you can’t call Bernanke a crony” of President Bush’s, Valliere said. “There is little doubt in my mind that Greenspan has approved this.”
“The President has made a distinguished appointment in Ben Bernanke,” Greenspan said in a written statement. “Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as chairman of the Federal Reserve Board.”
Senate Banking Committee Chairman Richard Shelby said he was confident Bernanke would be well-received by the committee, which will consider the nomination.
“I look forward to a rigorous discussion of a variety of economic issues during Dr. Bernanke’s confirmation hearing,” the Alabama Republican said in a statement. “I am confident that this nominee will be thoroughly questioned but also well-received by all members of our committee.”
In a conference call with reporters, Shelby predicted the committee would hold a confirmation hearing before Thanksgiving.
Bernanke, of course, has large shoes to fill. In his 18 years as Fed chief, Greenspan established himself as possibly the most powerful chairman in history, guiding the U.S. economy through the nation's longest postwar expansion as well as two recessions. He helped restore calm to financial markets after the terrorist attacks of 9/11, the stock market crash of 1987 and the international crisis triggered by Russia's default on its debt in 1998.
Bernanke always voted with Greenspan while he was at the Fed, although the two men differ on at least one key issue of monetary policy. Bernanke favors an explicit inflation "target," while Greenspan has pursued a more flexible policy with no stated target.
If approved by the Senate, Bernanke would be only the 14th chairman since Congress created the central bank system in 1913 in response to a series of financially devastating bank panics.
The appointment as chairman runs four years, although Bernanke could serve 14 years if he is reappointed by future presidents. He would be required to step down from the Fed board when his single term as governor expires Jan. 31, 2020.
Born in Augusta, Ga., Bernanke got his undergraduate degree from Harvard and his Ph.D. in economics from the Massachusetts Institute of Technology.
In his two and a half years as a Fed governor, Bernanke was best known for raising the novel concern that the U.S. economy could be devastated by the type of deflation that crippled Japan for many years.
In a November 2002 address to the National Economics Club in Washington, Bernanke raised the issue and outlined a series of tools at the Fed's disposal for "making sure 'it' doesn't happen here," as he subtitled his speech.
The “Bernanke option,” as it was described, would be used in the event that short-term interest rates fell to near zero and the central bank needed other ways to stimulate the economy.
In mid-2003 the Fed cut the benchmark federal funds rate to a 46-year low of 1 percent and the Fed warned that inflation was getting dangerously low, but deflation never emerged.
Since mid-2004, the Fed has steadily been raising rates to head off the possibility of inflation. And with energy prices soaring, so-called core inflation has risen to the top of the Fed’s “comfort level,” according to policy-makers.
The fed funds rate is currently at 3.75 percent and probably will be raised to 4 percent when Greenspan and other Fed leaders hold their next scheduled meeting next week.
While the Fed chief technically sets policy together with a committee of central bank governors and regional Fed presidents, Greenspan has rarely faced much opposition in recent years. But analysts say it will take some time for the new Fed chief to achieve the same kind of consensus acceptance from fellow policy-makers.
Bernanke is married with two children.