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By Sue Kirchhoff, USA TODAY
WASHINGTON — The Greenspan era has ended. Welcome to the Bernanke Fed.
Even as retiring chairman Alan Greenspan was shepherding a 14th-straight interest rate increase through the Federal Reserve's policymaking group Tuesday afternoon, the Senate was moving to confirm his successor: Ben Bernanke, 52, a former White House economic adviser, Princeton professor and Fed governor who faces the daunting task of following the man some economists call the most effective central bank chairman in history.
Bernanke was confirmed by the Senate on a voice vote with the sole dissent coming from Sen. Jim Bunning, R-Ky., a longtime Fed critic. He was sworn in at 9 a.m. ET Wednesday by Fed Vice Chairman Roger Ferguson in a private ceremony in the Fed's ornate Board Room. The transition should continue to run smoothly on many levels. Bernanke inherits an economy that has been expanding since late 2001, with steady job growth and healthy business profits. He has pledged continuity with Greenspan's approach, emphasizing the importance of low and stable inflation, flexibility and greater openness. Bernanke (pronounced ber-NAN-kee) understands the inner workings of the central bank, having served on the Fed from 2002 to mid-2005. In recent weeks, he has huddled with Fed staff and talked with central bank colleagues and foreign officials to prepare for his job. Still, turbulence is possible. The transition comes at a pivotal time, with the Fed's Federal Open Market Committee deciding when, and how, to wind up its nearly two-year string of interest rate increases. The record housing market is losing steam, energy prices remain high, and the nation is saddled with huge trade and budget deficits.
Bernanke is untested in a crisis and has called for more explicit inflation targets, a change in Fed operations. "This is a challenging time for Mr. Bernanke. Greenspan's timing is very good. He's getting out when the heat is turning on," says Hugh Johnson, chairman and CIO, Johnson Illington Advisors, a money management firm in Albany, N.Y. Greenspan's departure would be disquieting for the markets in any case, but now it comes against a backdrop of weakness in Bush's economic team, which has been undermined by high turnover and the White House's difficulty in rallying the Republican-led Congress behind many of its policies, aside from tax cuts. "The apparent influence of White House economists has been quite small throughout the Bush administration, which hasn't changed much of late," says Richard DeKaser, chief economist at National City. The public will get a better feel for the new chairman on Feb. 15 when Bernanke presents the Fed's semi-annual economic outlook to Congress. Besides being Bernanke's first major outing as Fed chairman, his views on the economy will provide important clues about whether the Fed will raise interest rates at its March 28 meeting. The smartest boy in Dillon, S.C. In about four years, Bernanke has skyrocketed from largely anonymous academic to arguably the most powerful financial official in the world. His rapid ascent doesn't surprise some longtime friends. "When he told me he was going to the Board (in 2002), the light went off in my head: 'He's going to be Greenspan's successor,' " says Mark Gertler, chairman of the New York University Economics Department, who has known Bernanke for years. Bernanke was born Dec. 13, 1953, in Augusta, Ga., and grew up in Dillon, S.C. — population slightly more than 6,300. The town is named for James Dillon, a poor Irishman "who used a little home brew" to persuade officials to route a railroad through his land, according to the county development board. It has been known for tobacco farming and its proximity to "South of the Border," a Mexican-themed tourist mecca on Interstate 95 where Bernanke once worked. Bernanke's father was a theater manager and a pharmacist, and his mother taught school. Bernanke's was one of the few Jewish families in the area. He learned Hebrew from his maternal grandfather, who was a professional Torah reader and Hebrew teacher.
Like Greenspan, who honed his math skills by poring over baseball statistics as a boy, Bernanke was a rabid fan whose favorite book was the novel The Universal Baseball Association Inc., J. Henry Waugh, Prop., by Robert Coover. He taught himself calculus, was sports editor of his high school paper, was class valedictorian and got the state's highest SAT score the year he took the test. "He won a trip to England. I'll never forget that. I taught English Lit, and he sent me postcards to fill me in on things, because he knew I was interested," says Eunice Stephens, one of his high school teachers. Bernanke earned a bachelor's degree with highest honors from Harvard in 1975 and a doctorate in economics from the Massachusetts Institute of Technology in 1979. He taught at Stanford, MIT and Princeton, where he was chair of the economics department. Bernanke's academic work on the roots of the Great Depression has caused him to stress the importance of stable monetary policy. He was an early supporter of inflation-targeting, under which central banks announce an inflation range and pursue policies to hold price pressures within that region. In an early 2005 speech, Bernanke said he had expected to be an "academic lifer," reveling in the freedom teaching allowed to explore old ideas, develop new ones — and avoid wearing suits. In that speech, he described his only other political stint, six years on the Montgomery Township, N.J., school board as a chance to be "trashed alternately by angry parents and angry taxpayers." He said his administrative background included deciding "whether to serve bagels or doughnuts at the (Princeton) department coffee hour." Speaking with reporters at the World Economic Forum in Davos, Switzerland, last week, billionaire investor George Soros said he was worried that Bernanke's academic background might make him less flexible than Greenspan. "I'm a little bit worried, because Bernanke is an academic," Soros told Bloomberg News, adding that Greenspan "had the insight to be very pragmatic and look at everything and not be guided by any particular dogma." A forceful, sharp debater Despite lack of government experience, Bernanke proved a quick study in Washington, becoming one of the most influential members of the Fed Board. Former Fed economist Brian Sack describes him as soft spoken but forceful, a sharp debater on policy who forged cordial relations with fellow governors. "He would take stands on very important issues ... that at times did not fully agree with the chairman or other committee members, but would do so in a very effective way," says Sack, now a vice president at consulting firm Macroeconomics Advisers. Sack's firm did a study looking at which Fed members were most likely to move markets when they spoke. Greenspan was No. 1, but Bernanke, despite his limited time on the board, was second. Bernanke attracted attention for a November 2002 speech laying out Fed options if the country became mired in deflation — a broad, downward spiral in prices. He suggested the Fed could take unorthodox steps, if needed, such as buying long-term Treasury notes. He endorsed inflation-targeting, though Greenspan opposed it, and based on his own research, posited that the huge trade deficit was partly due to a "savings glut" in developing nations, which were putting excess cash in the USA. He, like Greenspan, said the Fed should not try to pop potential asset bubbles. President Bush in 2005 brought Bernanke to the White House as chief economic adviser, a move viewed in the markets as a tryout for the Fed chairman's job. Not only was Bernanke respected in academic circles, but also he was an easier sell on Capitol Hill than some potential Fed chairman nominees. He's been through the confirmation process several times for his White House and Fed jobs and didn't have a record of endorsing big tax cuts or other contentious fiscal policies. Bernanke's deflation speech, in which he said the government could print more money, if needed, to stimulate the economy, has led to concerns in the bond market that he will not be as tough on inflation. Sack, who did research on deflation with Bernanke, calls that a misreading of his position. "What that episode highlights is that he's a policy activist. ... It in no way suggests he has some inherent upward inflationary bias," Sack said. "It's confusion about policy activism vs. direction. ... He has been very clear what his inflation objective is, so that doesn't leave much room" to vacillate. Bernanke has advocated a target for core inflation, which excludes food and energy, of 1% to 2% a year. Gertler praises Bernanke as a creative economist and someone so skilled with words that he took over the writing duties on their joint research. Bernanke's precise, explanatory prose has led some to predict that he will be a more open communicator than the purposely oblique Greenspan. "He was an educator for most of his life. ... That's the way he approached being a Fed governor," Gertler says, adding Bernanke was amused by a news article referring to Greenspan as a maestro and himself as a music professor. While Bernanke is a more conversational writer, he doesn't speak in sound bites. As White House economic adviser, he was sometimes halting in TV interviews. He easily parried questions at his Senate confirmation hearing, however, and showed that it might be as easy for a Fed chairman to sidestep questions with short sentences as with muddy syntax. Ward McCarthy, of consulting firm Stone & McCarthy, says his biggest concern about Bernanke is that he could take the move to openness too far, possibly impeding internal debate at the Fed. "There will be a fair amount of uncertainty in the early stages of the Bernanke tenure, because it will take a while for Bernanke to establish a track record and for the market to get comfortable with Bernanke-speak," McCarthy said. A lower profile Bernanke has been a more private figure than Greenspan. He and his wife, Anna, a Spanish teacher at a private school in Washington, have kept a low profile on the Washington circuit, compared with Greenspan and his wife, NBC's Andrea Mitchell, A-list party regulars. Bernanke has two college-age children. Sack and others expect Bernanke to adopt a less formal managerial style at the Fed, allowing more debate and discussion than Greenspan. Economists point out that the high caliber of current Fed governors and regional bank presidents gives him numerous resources from which to draw. Bernanke's desire for more openness will also require conciliation with Fed officials. Noting that Greenspan was as close to a rock star as was probably possible for a Fed chairman, Harvard economics professor Gregory Mankiw, formerly head of the White House Council of Economic Advisers, advised Bernanke to consider the virtues of dullness. "My recommendation to you is to become as boring a public figure as possible," Mankiw said in a December speech. "For an economist, being boring is an occupational hazard. For a central banker, however, it is just the ticket." |
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