White House economic adviser Ben S. Bernanke, President Bush's choice to succeed Alan Greenspan as chairman of the Federal Reserve, pledged today to steer clear of "all political influences" at the helm of America's central bank and said he would continue to focus on controlling inflation.
In prepared testimony at his confirmation hearing before the Senate Banking Committee, Bernanke, 51, also stressed that "continuity" with Greenspan's policies was a top priority. But he expressed support for one key departure from those policies, saying he wants to set long-term targets for inflation, provided his colleagues on the Federal Reserve Board agree.
Bernanke, currently chairman of the president's Council of Economic Advisers, was nominated by Bush last month to replace Greenspan, 79, who is retiring Jan. 31 after 18 years as chairman of the Board of Governors of the Federal Reserve. A former economics professor and department chairman at Princeton University, Bernanke served on the Fed's board from 2002 until shortly before he took the job of chief White House economic adviser earlier this year.
He comes to the Fed post at a time of considerable economic uncertainty. In opening remarks at today's one-day Banking Committee hearing, Sen. Paul S. Sarbanes (D-Md.), the top Democrat on the panel, noted that U.S. trade and budget deficits are soaring, the hot housing market may be cooling, and Wall Street is being rocked by rumors of dangerously overextended hedge funds at risk of collapse.
"Welcome to the committee this morning, Dr. Bernanke," Sarbanes said wryly. Sitting alone at the witness table, Bernanke smiled placidly but did not reply.
In his prepared remarks, the nominee said that as Fed chairman, he would "bear the critical responsibility of preserving the independent and nonpartisan status of the Federal Reserve," a status he considers essential.
"I assure this committee that, if I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve's mandate from Congress and by the public interest," he said.
He added, "With respect to monetary policy, I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority."
Bernanke also pledged to "maintain the focus on long-term price stability as monetary policy's greatest contribution to general economic prosperity and maximum employment." Noting that "recessions have been less frequent and less severe" in recent decades, he credited the Fed's success in reducing and stabilizing inflation under Greenspan as a major reason for this performance.
Bernanke said he strongly supports a trend of making monetary policy more transparent. This, he said, increases democratic accountability, reduces uncertainty in financial markets and "helps to anchor the public's expectation of long-run inflation."
But in a break with Greenspan's views, Bernanke said greater transparency could be achieved if the Fed's Federal Open Market Committee would "state explicitly the numerical inflation rate or range of inflation rates it considers to be consistent with the goal of long-term price stability." He said he views such statements as "fully consistent with the Federal Reserve's current policy approach."
But he promised that if confirmed, he would not take any "precipitate steps" toward setting such inflation targets. He said the matter "requires further study at the Federal Reserve" and extensive consultations. "I would propose further action only if a consensus can be developed" that the targets would help achieve both stable prices and maximum sustainable employment, he said.
Greenspan has opposed setting such targets on grounds they could constrain the Fed's flexibility.