President Bush yesterday named his top economic adviser, Ben S. Bernanke, to succeed Federal Reserve Chairman Alan Greenspan, who steps down Jan. 31 after helping guide the U.S. economy for more than 18 years.
Bernanke, 51, who served as a Fed board member and once chaired Princeton University's economics department, "is the right man to build on the record Alan Greenspan has established," Bush said to reporters in the Oval Office yesterday.
Bernanke assured listeners that Greenspan's coming retirement will not trigger any significant shift in the Fed policies -- primarily the adjustment of interest rates -- that have helped deliver solid economic growth, low inflation and low unemployment for much of the past two decades.
"My first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years," Bernanke told reporters, as the Fed chairman stood a few feet away. "If confirmed by the Senate, I will do everything in my power, in collaboration with my Fed colleagues, to help ensure the continued prosperity and stability of the American economy."
Stock prices rose yesterday as Wall Street welcomed the selection of a highly regarded economist who has focused his academic career on studying Fed policy, whose thinking is well known to financial markets and who would arrive with recent experience working with Greenspan at the Fed, analysts said.
"Bush has probably made the best choice among the top contenders for the post and one that is likely to reassure financial markets," said Nariman Behravesh, chief economist at Global Insight, a financial advisory firm.
That kind of reaction contrasted sharply with the continuing criticism by many administration supporters of Harriet Miers, Bush's Supreme Court nominee.
However, White House officials had acknowledged in recent weeks that they had not found an ideal nominee in Bernanke or in other publicly discussed candidates because none had experience working in financial markets or in business. Before joining the Fed in 2002, Bernanke spent his entire professional career in academia.
White House officials had hoped to find a successor to Greenspan who could similarly serve as a cool and effective crisis manager, particularly in view of several looming economic challenges.
They include managing the nation's growing trade deficit, a possible cooling of the housing market and continued high energy prices. Consumers have record debt and low savings. And average wages for most workers are lagging behind inflation, which surged last month at the fastest rate in 25 years.
Fed officials may still be debating early next year whether they should continue raising interest rates to keep inflation under control.
An academic by nature, Bernanke might be strongly wedded to his theories or models of "how the world works, which increase the risks of mistakes, and he has not been tested in a crisis," said William C. Dudley, chief U.S. economist for Goldman Sachs U.S. Economics Research.
Greenspan, by contrast, spent several decades running his own business consulting and forecasting firm, developing an intuitive feel for how executives make decisions about hiring, investing and setting prices.
Greenspan's experience helped him pass his first big test, the October 1987 stock market crash, which occurred just two months after he was first confirmed as Fed chairman. His actions then were widely credited with quickly stabilizing financial markets.
Almost a decade later, that background helped Greenspan understand before his Fed colleagues did that the productivity of U.S. workers was surging. Based on this conviction, Greenspan led the Fed, over internal protests, to hold interest rates lower in the second half of the 1990s than many economists thought advisable, allowing unemployment to fall to the lowest level in generations while keeping inflation contained.
Bernanke, if confirmed, "will replace a legend," said Bush, who thanked Greenspan for attending the Oval Office event. The Fed chairman said "thank you" but did not comment further. He separately issued a statement calling Bernanke's nomination "a distinguished appointment."
"Ben comes with superb academic credentials and important insights into the ways our economy functions," said Greenspan, who himself replaced a legendary Fed chairman, Paul A. Volcker.
Bernanke may not have Greenspan's resume, but "he has the same objectives, which means there will be a lot of continuity of policy," said Mickey Levy, chief economist at Bank of America Corp. "It's not enough that he has a superb academic background, it's that he is able to harness that toward leading the Fed toward the right objectives."
Bernanke became chairman of the president's Council of Economic Advisers in June after three years on the Fed's board of governors. He became known at the Fed as an advocate for greater openness about the central bank's deliberations, actions and policy intentions.
He argued that the Fed should establish a numerical target range for inflation over time, with some flexibility to divert from the goal in the short term in response to changing economic conditions. Greenspan opposes the idea, but the disagreement did not cause a rift between the two men.
Greenspan, 79, served as CEA chairman under President Gerald Ford and was first appointed to run the Fed by President Ronald Reagan. He was reappointed by President George H.W. Bush, President Bill Clinton and last year by President Bush. He plans to chair the Fed's meeting Jan. 31, his last day in office.
The Fed's monetary policy -- the use of interest rates to promote healthy economic growth while keeping inflation low -- has not been a subject of partisan differences in recent years.
The Senate Banking Committee will likely hold confirmation hearings before Congress adjourns this year, perhaps before Thanksgiving, said Chairman Richard C. Shelby (R-Ala.).
Bernanke "is a good appointment, a highly qualified individual" for the job, Shelby said. The nominee will be "thoroughly questioned but also well received by all members of our committee."
Sen. Paul S. Sarbanes (Md.), the ranking Democrat on the committee, said Bernanke "brings a lot of credentials to the nomination," but added that he would want to hold a "very thorough hearing to explore his views to assure ourselves of his independent judgment."
The Fed chairman is appointed by the president and confirmed by the Senate to a four-year term. But the chairman is supposed to act independently of political pressure when the Fed adjusts interest rates.
Greenspan has often entered into partisan economic policy debate outside the area of the Fed's mandate, irritating lawmakers on both sides of the aisle. He angered Republicans in the 1990s by helping win support for President Clinton's budget-reduction efforts. He drew Democratic criticism in recent years for his support of Bush administration priorities, such as extending the recent tax cuts and creating private Social Security investment accounts.
Senators likely will use the confirmation process to explore whether Bernanke would do the same.
Even while working at the White House, Bernanke has not appeared unduly close to the Bush administration, Dudley said. This "does suggest that he has more political acumen than some might give him credit" for, he said.