After steering the United States economy through an extraordinary boom
punctuated by recession and financial crises, Federal Reserve chairperson Alan Greenspan headed into a well-earned retirement on Tuesday.
Greenspan (79) chaired his last meeting of the US central bank’s Federal Open Market Committee (FOMC) before handing over to top White House economic adviser Ben Bernanke.
Analysts expect more of a change in tone than substance, at least to begin with, once the professorial Bernanke (52) succeeds the inscrutable Greenspan on Wednesday.
For nearly two decades, Greenspan has bestrode the global financial scene with an unrivalled authority. He replaced another legendary Fed chairperson, Paul Volcker, back in 1987.
Bernanke, a former head of economics at the elite Princeton University who returns to the Fed after a stint as a governor from 2002 to 2005, is a world-class expert on monetary policy.
The shortcoming for some is his lack of hands-on experience in financial markets. But then Greenspan was a greenhorn Fed chief once, before he was blooded in the ”Black Monday” stock market crash of October 1987.
When he was nominated by then president Ronald Reagan, US bond prices plummeted for fear that the new Fed chairperson would not be as tough as the inflation-busting Volcker.
But Greenspan’s cool handling of Black Monday, and his commitment to be every bit as hawkish on inflation, soon had the markets cooing.
”Alan Greenspan was the central, most important financial policymaker of the post-World War II period anywhere in the world,” Larry Summers, president Bill Clinton’s last Treasury secretary, said on the CNBC network.
”His legacy of a strong US economy, a credible US currency and a remarkably resilient US financial system is one from which we will all benefit for a very long time,” he said.
”I think you make your breaks, and Alan Greenspan did enjoy good luck. But he earned his good luck through making hard, counter-intuitive judgements.”
As Bernanke prepares to take over, investors are extraordinarily calm, with the normal indicators of an anxious market — rising credit risk premiums and increased volatility — absent.
The real difference could come in how the new US central banker communicates his message to the markets, economists say, after more than 18 years of the obscure utterances that have come to be known as ”Greenspeak”.
”A lot of us will miss Greenspan because we’ve learned his language, and there aren’t that many people in the world who understand Alan Greenspan,” commented Joel Naroff of Naroff Economic Advisors.
”I suspect Ben Bernanke will be a little clearer, but not anywhere near as clear as most people expect him to be,” he said.
”The Fed chairman, by nature of his job, has to be reasonably circumspect. Conditions change on any given day and you can’t go out there and shout ‘I’m raising rates tomorrow!”’
One key policy difference could lie with Bernanke’s espousal of an inflation target for the Fed.
Greenspan has expressed fear that the pursuit of such a target, which is in common use among other major central banks, would tie the Fed’s hands.
But for Bernanke, who is steeped in the history of the 1930s Great Depression from his academic studies, the very worst thing the Fed can do is to allow prices to fall too much and let a crippling deflation set in.
Greenspan is not universally venerated. He has been criticised for brooking no dissent among the Fed governors. Bernanke will be more of a consensus-builder, pundits say.
Greenspan’s biggest policy mis-step, detractors argue, was his support in 2001 for multibillion-dollar tax cuts pushed by President George Bush that have driven the US budget deficit to record highs.
”I think he stepped way over the line in that and made a big mistake,” Alan Blinder, who served under Greenspan in the 1990s as Fed vice-chairperson, told a seminar on Tuesday at the Council on Foreign Relations in New York.
But Blinder, who had his differences with Greenspan, still believes the outgoing Fed chairperson ”has a legitimate claim to being the greatest central banker who ever lived”. – Sapa-AFP