Federal Reserve Nominee
Tuesday, October 25, 2005; 11:00 AM
Washington Post staff writer Nell Henderson was online Tuesday, Oct. 25, at 11 a.m. ET to discuss President Bush's selection of White House chief economic adviser, Ben S. Bernanke, to be his nominee for Federal Reserve chairman succeeding Alan Greenspan when his term expires on Jan. 31.
A transcript follows.
Nell Henderson: Hi. I'm looking forward to your questions and comments.
Arlington, Va.: Given the laundry list of horrible things that could happen to the economy during the coming months (as outlined in today's Business section), what's your take on any diversions from Greenspan's path that Mr. Bernanke might take? It seems like raising interest rates further combined with the new restrictions on bankruptcy filing is something that could only dovetail in George W. Bush's America.
Nell Henderson: Yes, the new Fed chairman will face many challenges. One of the first thing Ben Bernanke said yesterday is that he will pursue "continuity" with Greenspan's policies. But at the same time, he is not Greenspan and may do many things differently. Without listing them all here, I'll go to your question about interest rates. Bernanke, if confirmed, won't take over until February. Between now and then, the Fed will likely hike short-term interest rates at least twice, and maybe three times. We'll have to wait to see where the economy stands in February--whether inflation is picking up or appears tame, whether economic growth appears solid or weak--to guess where Bernanke, and the rest of his Fed colleagues are likely to take interest rates from there.
Washington, D.C.: Was Bush's choice a good one? It seems like things need to remain copacetic. Is that a good strategy?
Nell Henderson: Well it's not really my job to opinionate on whether it was good or not. But clearly financial markets reacted well. Global investors appear comfortable with the nomination of someone who is familiar to them. Because of his three years on the Fed, they know how he thinks about many economic issues. He has recent experience working with Greenspan and the other Fed policymakers. He is well liked by the Fed staff. Greenspan had warm words for him as well. However there also were critics yesterday, who warned that he may be too much of an academic to make the right decisions in the real world. He also is untested as a crisis manager. So we'll see how does.
Arlington, Va.: How will the lag time between nomination and appointment affect international investor confidence? Will the buzz generated by any Congressional antics around this nomination make us look even worse in front of the international community?
Nell Henderson: Well it sounds like you don't have a high opinion of Congress. I'm not sure the lag time will make much difference. Greenspan will be in charge til Feb. 1. That gives the Senate Banking Committee plenty of time to act on Bernanke's nomination. It appears very likely he'll get confirmed pretty quickly. He has been confirmed by the committee three times before: twice for the Fed board and once for the job of chairman of the president's Council of Economic Advisers. I expect he'll get some intensive questioning, but I know of no outright opposition.
Titusville, N.J.: Hello Ms. Henderson --
As soon as the announcement was 'leaked' I did a quick search to see if there are any books Mr. Bernanke wrote that might help give an overview of his mindset and/or personal theories he might apply to the fed. Most of the books, though, were edited volumes featuring multiple contributors aside from "Essays on the Great Depression" which I'm not sure will provide the insight I'm looking for. Do you possibly have any recommendations?
Nell Henderson: There are several sources to try .He did write a macroeconomic textbook. But you might find it more satisfying to read his speeches and research papers. First, you can go to the Federal Reserve's Web site and read all the speeches he gave while he was on the board (2002-2005. Second, go to the Web site of the National Bureau of Economic Research, for which he has written many papers. He also has given a couple of speeches since joining the White House. They are on the site of the Council of Economic Advisers. Enjoy!
Silver Spring, Md.: Does a Federal Reserve Chairman have to be approved by the Senate? If yes, it's unclear to me why this is a requirement. Although probably mandated by some law, this position seems not to be politically affected, in my opinion.
Nell Henderson: The Federal Reserve is a government institution,not a private bank. It was created by Congress, and is subject to congressional oversight. The president appoints the seven members of the Fed Board Governors, including the chairman of the board, subject to Senate confirmation. There also are regional Fed banks, each of which has its own president, chosen by the bank's board of directors. Those presidents participate in the Fed's interest rate policy decisions.
Tampa, Fla.: Is there any evidence Bernanke actually believes that supply-side garbage? For example, what were his views on Clinton's raising taxes to reduce the federal budget deficit and rescue the economy?
Nell Henderson: I am not aware of him expressing opinions on the subject publicly. Most of his economics research has been on monetary policy.
washingtonpost.com: Federal Reserve
Alexandria, Va.: Before this announcement, there were rumors floating around that Greenspan was angling for a delayed announcement or a delayed confirmation process so he could extend his stay long enough to beat out McChesney Martin for longevity. Any chance this will still happen?
Nell Henderson: No chance. I reported that back in the spring, the White House was flirting with the idea of letting him stay on longer. But I believe now that Greenspan wants to step down when his term ends Jan. 31, and the White House understands it is better for the economy and financial markets to remove any uncertainty about the timing of the transition.
washingtonpost.com: National Bureau of Economic Research
washingtonpost.com: Bush Picks Adviser as Greenspan's Successor (Post, Oct. 25)
Washington, D.C.: Could Congress pass a resolution to urge the Fed to lower rates, or intervene directly and set the various rates that the Fed charges for short term borrowing?
Nell Henderson: Congress can pass a resolution urging anything. That doesn't mean the Fed would have to follow it. Under current law, Congress cannot intervene and set interest rates. But of course Congress can change the law! But I would think that scenario extremely unlikely.
Nell Henderson: We've run out of time. Thanks for the questions. It's been my pleasure. Bye!
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