Long seen as one of the two or three favourites to replace Alan Greenspan at the helm of the Federal Reserve, Ben Ber-nanke is the chairperson of President George W Bush’s council of economic advisers. He is a highly respected monetary economist and had a high profile when working as one of the federal governors. Bush has described him as a ”talented and visionary thinker”.
Bernanke (51) is the product of a Harvard undergraduate education and Massachusetts Institute of Technology graduate school, where he researched the Depression, the full explanation for which he has described as ”the holy grail of macroeconomics”. He was chairperson of the economics department at Princeton until he joined the Federal Reserve board of governors in 2002. He came up with the concept of fine-tuning inflation to a ”Goldilocks” level: not too hot, nor too cold.
Bernanke is a fan of inflation targeting — as practised by the Bank of England — which, he argues, would shift market confidence from a person to an institution. One of the main criticisms of the federal decision-making system is that it has been too dependent on the personality of the chairman.
For the past 18 years, the Federal Reserve has been inextricably linked with every breath and phrase of Alan Greenspan and has not had an explicit inflation target, preferring to seek a mix of steady growth and low inflation without setting specific targets.
Bernanke, who will succeed Greenspan in January, made waves earlier this year when he talked of a ”global savings glut” in which people in places such as Europe, Japan and Latin America saved too much and spent too little. He offered this notion as a possible explanation for the giant United States trade and current account deficits, as well as the weakness of the global economic recovery.
But Bernanke’s most famous speech was made in 2002. Entitled Deflation: Making Sure it Does Not Happen Here, he argued that the Federal Reserve should do whatever it took — such as cutting interest rates to zero, thereby flooding the economy with liquidity — to ensure that prices did not start falling and continue to do so, as has been happening in Japan for more than a decade.
Now, just three years on, the opposite problem is true. Surging oil prices have pushed up inflation in the US. In September, prices jumped 1,2% from August, the biggest monthly rise in a quarter of a century.
Financial analysts on both sides of the Atlantic think the choice of Bernanke is a sound one and will not mark any radical departure for the Federal Reserve as it faces up to the threat of inflation, a house price bubble and the giant trade deficit. — Â