Transcript

Bernanke Nomination Hearing

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Nell Henderson
Washington Post Staff Writer
Wednesday, November 16, 2005; 12:00 PM

Washington Post staff writer Nell Henderson was online to discuss Tuesday's Senate confirmation hearing for Ben Bernanke as Federal Reserve chairman

In an article today , she writes that Bernanke pledged yesterday to protect the central bank's political independence while continuing his predecessor's policies.

A transcript follows.

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Nell Henderson: Hi everyone. Thanks for your time, comments and questions. Let's go!

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Washington, D.C.: Treasury bonds rallied on Bernanke's comments yesterday. How many more rate increases do you think we're in for?

Nell Henderson: It's dangerous to make predictions, since obviously future decisions will depend on how inflation is behaving and how strongly the economy is growing. But barring any surprises, I think we'll get another quarter-percentage point increase in the Fed's benchmark federal funds rate (the overnight rate charged between banks)at the Dec. 13 Fed meeting, and probably another at the Jan. 31 meeting, which will be Alan Greenspan's last day as Fed chairman. That would take the rate to 4.5 percent. If things look good then, the committee may signal that they think they are done for now. If not they might signal that they are likely to keep raising rates at a "measured" pace (meaning more hikes in store." But then on Feb. 1, Ben S. Bernanke is likely to become the new Fed chairman. It really is impossible to say now whether he and the rest of the Fed's top policymaking meeting will want to raise the rate again in late March.

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Washington, D.C.: You write that Bernanke would take over at a time of multiple economic challenges, including huge U.S. trade and budget deficits, high energy prices, and a cooling housing market. Yet Jack Welch and other execs say the current economy is vital. Which is it?

Nell Henderson: Both. The economy is in good shape now. "Challenges" refers to the potential for things to get dicier in the future. For example, Bernanke said yesterday he expects house prices to stabilize. That may proceed smoothly, with no big problems for consumers or the economy. Or it could be a rockier transition, and a challenge for the Fed.

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Arlington, Va.: Given the questions and answers you heard yesterday, was there any doubt that the committee would confirm Bernanke? And is it a foregone conclusion that he'll be confirmed by the full Senate?

Nell Henderson: He was confirmed by the Senate Banking Committee this morning on a voice vote. Only Sen.Bunning was recorded as voting against. Yes, full confirmation by the Senate appears to be a foregone conclusion, though it may not happen until January.

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Burke, Va.: Sen. Jim Bunning said Bernanke was too much like Greenspan. Why is that a bad thing?

Nell Henderson: Bunning didn't like Greenspan and voted against his confirmation last year as chairman. Bunning has criticized Greenspan for offering opinions on economic issues other than Fed policy.

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Fairfax, Va.: How would you rate Bernanke in his current job? He was supposed to be one of the administration's top spokesmen for economic policy, but I don't remember seeing him that often in the public eye.

Nell Henderson: Well he is chairman of the president's Council of Economic Advisers, but has only had the job since June. Although he has given public speeches and congressional testimony in that context, it didn't attract much attention because the Bush administration's economic agenda is well known. In other words, he didn't make any news in the job.

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washingtonpost.com: Nell, the concept of inflation targeting came up in connection with the hearing. Can you explain inflation targeting and Bernanke's thoughts on the topic?

Nell Henderson: I'll try to make this short.But if you want more details, I'd recommend you go to Bernanke's speeches on the topic as Fed board member and his numerous academic papers, which are available online.

Right now, the Fed tries to achieve low inflation, or "price stability" in the official jargon. But nobody has put a number on what that means. Is it zero inflation? 1 percent? 2 percent? And by what measure? The consumer price index or some other measure? And over what time horizon?

Inflation targeting, as practiced by many other countries, publicly states a numerical goal, a "target" if you will, for the central bank to aim at.

For example, privately, many Fed officials have an unofficial "comfort zone" of around 1 percent to 2 percent for a Commerce Department measure called the core personal consumption expenditure index, which excludes food and energy prices.

Bernanke has advocated that the Fed announce a goal, that could be achieved over the long term. But he made clear yesterday that the idea needs more study and discussion within the Fed, and he would not push to establish a target without "consensus" on the issue.

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Washington, D.C.: I'm wondering if Alan Greenspan has a nice leisurely retirement planned, or is he planning to take on a new professional role?

Nell Henderson: He's not telling, but I doubt he will "retire" in the sense of not doing anything. He appears to love working, and his idea of relaxing is playing tennis, working out math problems, listening to music and enjoying the Washington social whirl. He will undoubtedly be asked to serve on multiple public service projects, commissions, panels, boards of directors etc.

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Cabin John, Maryland: Nell, how likely is it that Chairman Bernanke will be able to avoid (resist) the temptation to speak out on topics (e.g., taxes and fiscal policy) beyond his monetary policy responsibilities?

Nell Henderson: I don't think Bernanke will feel that tempted. He will try to resist. But he will get pressured by members of Congress and White House officials to endorse their various economic positions. Right now, while he is still working for the White House, he will remain extremely circumspect. It remains to be seen whether he "resists temptation," as you put it, after he becomes an independent Fed chairman.

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Nell Henderson: I think that's it for today. Thanks for all your questions. Bye.

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