What Will a Bernanke-Led Fed Look Like?
Oct. 24, 2005 — -- President Bush today formally appointed Ben Bernanke to take over as chairman of the Federal Reserve when Alan Greenspan steps down in January. ABC News Business Correspondent Betsy Stark examines Bernanke's qualifications and projects how he might fare following in Greenspan's considerable footsteps:
1) One thing you won't hear today is that Ben Bernanke is not qualified for the job. He has sterling academic credentials as a Harvard and MIT-trained economist who chaired the Princeton economics department for several years. He has practical experience as a former Fed governor for three years. And his brief stint at the White House as chairman of the Council of Economic Advisers initiated him into economic policy-making in Washington. He is widely recognized as a leading "monetary" economist and he should be easily confirmed.
2) If he has a weakness in his background, it's lack of real-world experience, which is valuable in establishing a Fed chief's credibility in the financial markets, especially important at times of crisis. Greenspan's work on Wall Street as head of his own money management and consulting firm gave him an unusual ability to calm markets in times of crisis. It also introduced him to many corporate chief executive officers, with whom he regularly spoke to take the temperature of the economy. Wall Street is offering an early vote of confidence in Bernanke's nomination with a rally today, but the important tests are ahead: how he manages a market crash, Enron-like scandal, international currency crisis, terrorist attack, etc. Greenspan was a master at managing these types of problems.
3) One of the legacies of the Greenspan years is a Fed that's kept inflation low, which has helped keep growth steady. Bernanke will want to establish himself as an inflation fighter, too. But this is a tricky time to be an inflation fighter.
Today Bernanke said, "My first priority will be to maintain continuity with the policies and strategies established during the Greenspan years." This is at least partly a message to the markets that he intends to fight inflation by continuing to raise interest rates. The biggest inflation threat right now is from high energy prices. But there is also evidence that higher energy prices are slowing the economy. If the Fed raises interest rates too much, it could hurt the economy and derail the housing boom, which has been an underpinning of economic growth for the last several years.
