New Federal Reserve chairperson Ben Bernanke got down to work on Wednesday with a parting gift from his illustrious predecessor to cope with a new mood of uncertainty in the United States economy.
Bernanke was to be sworn in at a private ceremony in the Fed building at 2pm GMT to succeed Alan Greenspan, who bowed out Tuesday with more one rate hike to cap 18-and-a-half years of celebrated service.
President George Bush had ringing praise for the new Fed chairperson, whom he nominated for the high-pressure job in October.
“Ben is a man of impeccable credentials, sound policy judgement and strong character — and he will make an outstanding chairman,” Bush said in a statement.
The first major engagement for Bernanke, who was the chief economist to the White House and served as a Fed governor from 2002 to 2005, will be to give twice-yearly testimony to Congress on February 15.
His first Fed meeting will take place on March 28, when many economists expect the lifelong academic to stage the 15th consecutive raise to US borrowing costs before calling a halt to the campaign of hikes.
Known for a plain-speaking style, in contrast to Greenspan’s Delphic manner, Bernanke promises clearer communications from the world’s pre-eminent central bank.
He would need to be at his oratorical best to calm the markets down if, as some pessimists predict, the red-hot US housing market implodes as a result of higher interest rates and consumer confidence collapses as a result.
Confidence readings for future months are pointing down, after the US economy grew by a mere 1,1% in the final quarter of 2005. But it remains to be seen if that was a one-off blip to an otherwise robust expansion.
More substantively, Bernanke espouses one major policy change from Greenspan — the adoption of an explicit inflation target to steer the Fed’s decision-making.
That has caused some unease among opposition Democrats, who fear the pursuit of an inflation target could detract from the Fed’s other core mandate of maximising employment.
But pundits say any fundamental differences between the old and new Fed chiefs will be hard to discern.
“I think Ben Bernanke really approaches monetary policy from the exact same major premise that Greenspan does — that the Fed can do the most to ensure prosperity by keeping inflation low,” said Comerica chief economist Dana Johnson, a former Fed official.
“If he’s true to that perspective, I think we’re going to find that monetary policy looks an awful lot like it did under Greenspan for the next several years,” he said.
On Tuesday, Greenspan’s final meeting of the Federal Open Market Committee (FOMC) raised the benchmark federal funds rate by a quarter point to 4,5%. That is its highest level since May 2001.
The increase was expected by economists, but the FOMC’s accompanying statement bequeathed a new policy prescription for Bernanke.
“The committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance,” it said.
That was a softening from the December meeting, when the FOMC said “some further measured policy firming is likely to be needed”.
Economists agreed that Greenspan had left room for Bernanke to respond to the incoming data as he sees best, rather than committing him to a pre-ordained series of rate hikes.
“All of this, in terms of the FOMC becoming data dependent, comes as no surprise, and the new Fed chairman has an open agenda from which to work,” Nomura chief US economist David Resler said.
No one doubts Bernanke’s academic credentials as one of the foremost monetary policy experts of his generation. Some do question his lack of experience in dealing with the periodic panics that overcome financial markets.
But then Greenspan was famously blooded by Wall Street’s “Black Monday” crash of October 1987, which erupted just two months after he had taken office.
“So just as Alan Greenspan got his baptism under fire in October of 1987 … at some point he’s going to be tested,” former Fed vice-chairperson Alan Blinder said on Tuesday at the Council on Foreign Relations in New York.
“I think he’ll pull through very, very well, and then the markets will say, ‘Aha’, you know, ‘We’ve got this new guy on the block. He’s awfully good’.” -AFP