Ben S. Bernanke urged Congress last week to reduce the federal deficit, cut government spending and make the Bush administration's recent tax cuts permanent.
Bernanke was speaking then on behalf of the president, as his top economic adviser, at a hearing of Congress's Joint Economic Committee.
But was he also expressing his own views? That's what lawmakers and analysts have been asking since Monday, when Bush nominated Bernanke to become the next chairman of the Federal Reserve, a position requiring political independence from the White House and Congress.
Current Fed Chairman Alan Greenspan has frequently advised Congress on a range of fiscal policy issues, exerting great influence and drawing both praise and criticism in the process. When he steps down Jan. 31 -- after more than 18 years as one of the most powerful officials in Washington -- many on Wall Street, on Capitol Hill and at the White House will be eager to see if his successor gains similar clout.
Some lawmakers and interest groups quickly invoked Bernanke's recent comments in favor of extending the tax cuts as signs of the policy prescriptions he would offer as Fed chief.
But Sen. Charles E. Schumer (D-N.Y.) said such assumptions are wrong. Bernanke assured Schumer on Monday that he was speaking to the congressional committee as chairman of Bush's Council of Economic Advisers and that he hoped to avoid such policy debates during his confirmation process and at the Fed, the senator recalled yesterday.
Bernanke, a Republican, indicated that he would prefer to limit his future public comments mainly to Fed policy, which includes both banking regulation and the use of interest rates to keep inflation and unemployment low, Schumer said.
"I told him he should rethink that," Schumer said. "I would encourage him to be a positive force for deficit reduction."
Similarly, Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) said yesterday that the panel members plan to question Bernanke on a wide range of economic issues beyond Fed policy.
"This will be a very involved hearing on both sides of the aisle," Shelby said after a private meeting with Bernanke. The committee hopes to hold the session sometime next month, Shelby added.
During his testimony last week, Bernanke expressed several opinions likely to be revisited at the confirmation hearing.
"I think it's important that we make the tax cuts permanent," he said, referring to tax-rate reductions and other provisions that are scheduled to expire in a few years.
The White House sees extending the tax cuts as one of its legislative priorities. Democrats have argued that some of the measures should be allowed to expire to reduce the federal budget deficit.
Delaying action or leaving the issue unresolved creates uncertainty for investors trying to plan ahead, which "could be costly" and could slow economic growth, Bernanke said.
Greenspan has made the same argument, but he always adds that the tax cuts should be extended only if spending is cut by a similar amount so the overall deficit does not grow -- contrary to the White House position. Bernanke added no such caveat.
Bernanke also advocated reducing the federal budget deficit as a way to increase national saving and help shrink the nation's record trade deficit.
"The United States should work to increase its national saving rate over time, by encouraging private saving and by controlling federal spending to reduce the budget deficit," Bernanke said.
The administration's top economist also rejected Democrats' efforts to blame the Bush tax cuts for swinging the federal budget from a surplus in 2001 to a series of annual deficits since.
"The deficits that arose early this decade primarily, in my opinion, arose because of the decline in the stock market, the end of the Internet bubble, and on the spending side, from the increased costs for the war on terror, in particular," he said.
Bernanke also echoed Greenspan in arguing that the budget deficit be shrunk by first reducing spending "as much as possible . . . before we raise taxes, which in turn would have negative impacts on the economy."
Bernanke has said in the past that the Fed has a role in budget debates when the outcomes would affect the well-being of the national economy and financial markets.
The Fed "has the responsibility to be a nonpartisan adviser on general matters of macroeconomic and financial stability," Bernanke said in a June 2004 interview published by the Fed bank of Minneapolis. "So to the extent that deficits and debt are threatening macroeconomic and financial stability, the central bank is one actor that can provide advice and counsel to the fiscal policymakers."
Shelby praised Greenspan for addressing all types of economic issues. "I think the chairman of the Federal Reserve carries a large portfolio," Shelby said.