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Following Greenspan's lead

Fed nominee says he will maintain continuity

Ben Bernanke gets a favorable reception before the Senate Banking Committee on Capitol Hill Tuesday.
Ben Bernanke gets a favorable reception before the Senate Banking Committee on Capitol Hill Tuesday.
Dennis Cook, Associated Press

WASHINGTON — Ben Bernanke, the president's chief economist, told senators Tuesday he'll continue the policies of Alan Greenspan if confirmed as Federal Reserve chairman and will make sure the central bank remains free of political influence.

Senate Banking Committee members, at a three-hour hearing on President Bush's choice to head the Fed after Greenspan retires, largely expressed confidence in the man who would take over a position seen by many as the second-most-influential job in America.

Maintaining continuity with Greenspan's policies is a top priority, Bernanke said.

"I intend to be flexible and to learn from experience," he said. "But I believe the right starting point is the point where we currently are, that Chairman Greenspan has demonstrated in his policymaking."

Bernanke also sought to assure lawmakers, investors and the public that he will make decisions on interest rates and other matters based on economic considerations, not political ones. "I will be strictly independent of all political influences," he vowed.

If confirmed as expected, Bernanke will lead the Fed at a time when the economy faces a number of challenges, including bloated budget and trade deficits and worries about whether the high-flying housing market will crash. There also are fears about high energy prices and whether they'll feed inflation, and concerns about the lackluster jobs market.

"All of your intellectual horsepower is going to be needed," said Sen. Debbie Stabenow, D-Mich.

Bernanke, 51, is a former Princeton professor and Fed governor who now serves as chairman of the White House Council of Economic Advisers. He's considered one of the country's top economic thinkers.

The Senate is wasting no time on Bernanke's nomination. Lawmakers and the administration want Bernanke ready to take over when Greenspan retires Jan. 31 after 18-plus years at the helm.

Bernanke also said he would move slowly and seek to build a consensus on the notion of inflation targeting — that is numerically spelling out acceptable bounds for inflation. That's one area where Bernanke and Greenspan differ. Bernanke supports a numerical inflation target, Greenspan doesn't.

"I will take no precipitate steps" on inflation targets, Bernanke said. "This matter requires further study at the Federal Reserve as well as extensive discussion and consultation."

While Greenspan has argued that inflation targets can restrain the Fed's flexibility, Bernanke said that would not be the case. Bernanke also said it wouldn't interfere with nurturing a good employment climate, one of the central bank's missions along with making sure inflation remains low.

Bernanke also spoke of the keen importance to the economy of making sure inflation stays under control. That, he said, will help job growth, allow consumers to have purchasing power and make it easier for businesses and investors to plan and make decisions.

Senators peppered Bernanke with questions about a wide range of issues including inflation targets, his independence as Fed chief, jobs, the trade deficit and the federal budget deficit, which totaled $319 billion this year, the third-highest on record.

While Bernanke said bloated budget deficits are a problem and they must be curbed, he also said he didn't want to weigh in on various fiscal proposals. "I'm going to begin now, I think, a practice of not making recommendations on specific tax or spending proposals."

Greenspan, 79, received a large dose of criticism from Democrats when he supported President Bush's call for massive tax cuts in 2001.

Democrats were especially interested in whether Bernanke would run the Fed fully independent from the Bush administration.

"The credibility of the Federal Reserve rests in large part on broad confidence in its independence in the judgment its makes," said Sen. Paul Sarbanes of Maryland, the panel's top ranking Democrat.

The choice of the well-respected Bernanke is seen as a safe one for Bush, whose job approval ratings are at record lows.

The Fed chief wields enormous power over the economy and the portfolios of millions of investors, large and small. The chairman carries much influence in shaping the Fed's decisions on interest rates. His words can move markets.

"Stepping into Mr. Greenspan's shoes will be a tremendous challenge," committee Chairman Richard Shelby, R-Ala., told Bernanke. "Each person who sits in the chairman's seat has the opportunity to make that position his own and to become a leader in his own right."