President Bush tapped another member of his inner circle for one of the most high-profile administration positions yesterday, naming chief economic adviser Ben Bernanke to replace Alan Greenspan as chairman of the Federal Reserve.
The pick is certain to please lobbyists and lawmakers alike, many of whom were awaiting Bush’s choice with a twinge of apprehension. Greenspan has broadened the Fed chairman’s duties of fighting inflation and reporting biannually to Congress into a symbolic role as the nation’s economic guru, making his successor a critical choice for a White House wracked by criticism of its decision to nominate another White House insider, Harriet Miers, to the Supreme Court.
Despite the extensive time Bernanke has served in the Bush administration, first as a Fed governor in the first term, then as the head of the president’s Council of Economic Advisers (CEA), business groups said his nomination would help reassure Wall Street and Washington that the Fed handover will be stable.
“This particular appointment may have a more profound impact on the business community than more notable or reported-on appointments the president has made,” said Marty Regalia, vice president for economic and tax policy and chief economist for the U.S. Chamber of Commerce. “We’d all be happy if they were able to find a Greenspan clone.”
However, Bernanke differs from Greenspan, who will have led the Fed for 18 years when he steps down Jan. 31, in a few potentially controversial respects. For instance, Bernanke favors using set inflation targets to determine shifts in the federal interest rate and policy moves, while Greenspan opposes targeting.
And just last week, Bernanke told the congressional Joint Economic Committee that delaying $70 billion in capital-gains and dividend tax cuts sought by the White House could slow economic growth and spark uncertainty in the markets. Such politically charged statements were rare from Greenspan, a Republican whose nonpartisan counsel has won him Democratic accolades.
Sen. Charles SchumerCharles SchumerDean: Schumer's endorsement 'kiss of death' for Ellison How the candidates for DNC chair stack up ahead of Saturday's vote DNC candidate Harrison drops out, backs Perez for chairman MORE (D-N.Y.), a Banking Committee member who often weighs in on Greenspan’s policy on U.S.-China trade relations, said Bernanke had told him that the tax-cut testimony was given strictly in his capacity of chairman of the economic council. Still, Schumer hinted that Bernanke has yet to convince senators that he can match Greenspan’s inscrutable knack for being all things to all legislators.
“An important question remains and will hopefully be answered at his confirmation hearing: Will Bernanke adopt the Greenspan model of flexibility in monetary policy that has served our economy so well?” Schumer asked.
Frank Fernandez, senior vice president and chief economist at the Securities Industry Association (SIA), predicted that the Fed chairman’s apolitical mandate will be Bernanke’s biggest challenge.
“One of the things one has to do here … is ensure markets understand that the Fed remains independent and remains a creature of Congress, not of the administration,” Fernandez said. Should he be confirmed, Bernanke will be legally required to deliver periodic reports to lawmakers on U.S. monetary policy.
Bernanke periodically sits down with leading trade-group executives to discuss economic-policymaking questions of special concern to their sectors, a habit unusual for the CEA chairman but typical for Greenspan. Dave Huether, chief economist at the National Association of Manufacturers (NAM), came away impressed by Bernanke after a recent meeting on Hurricane Katrina recovery.
“He’s pretty up to speed on the issues that are of importance to manufacturers,” Huether said. “I’d hope and suspect that type of communication would continue” between Bernanke and NAM.
K Street economists noted that Bernanke must walk a fine line when it comes to interest rates to soothe already-mercurial markets. The Fed under Bernanke should appear tough enough on inflation to stimulate investment, they said, but not so tough that speculation ensues over whether slowly climbing interest rates will trigger a rise in unemployment and create stagflation.
“You want somebody that has a little sense of their role, what they can say and what they can’t say, without causing undue consternation,” Regalia said.
Bernanke will head to the Senate Banking Committee for confirmation hearings that could begin before the end of the year. The reception he receives from senators will likely parallel lobbyists’ initial reactions, with most approving of his qualifications but expressing some wariness about the staggering task he faces in succeeding Greenspan.
“He is extremely well-versed in monetary policy and has earned tremendous respect and confidence from policymakers in this country and around the world,” said Sen. Richard Shelby (R-Ala.), chairman of the banking panel. “I am confident that this nominee will be thoroughly questioned but also well-received by all members of our committee.”
Signaling Democratic mindfulness that Bernanke’s confirmation will provide a chance to focus the party’s message on economic inequities, Senate Minority Leader Harry ReidHarry ReidSanders and Schumer are right: Ellison for DNC chair The Hill's 12:30 Report Hopes rise for law to expand access to experimental drugs MORE (D-Nev.) issued a statement that held off on praising the nominee’s record before his hearings begin.
“It will be important that Mr. Bernanke demonstrate that he is committed to guiding the economy to produce results for all Americans rather than promoting partisan policies that benefit special interests and an elite few,” Reid said.
One Banking Committee member wasted no time before announcing his opposition to Bernanke. Sen. Jim Bunning (R-Ky.) released a statement decrying what he called Bernanke’s failure to assert his own views when they differed from Greenspan’s.
“The position of Federal Reserve chairman is probably the most important economic choice the president has to make. He has chosen poorly,” Bunning said.
Bunning cast the committee’s lone vote against Bernanke’s elevation to chairman of the economic panel earlier this year, also citing Bernanke’s lack of a single dissenting vote during his time as a Fed governor under Greenspan.
Even though Bernanke will likely win confirmation, his ascension may bring about lingering consequences for business lobbying, which previously had been shaped by Greenspan’s unparalleled muscle.
“We think they’re moving in a measured fashion that we think is supportive of growth,” Huether said, “but if they do take actions we think are unnecessary and going to put the economic health of manufacturers in jeopardy, we’re going to lobby them as hard as we can.”
Stocks soared yesterday on news of Bernanke’s nomination, with the Dow gaining nearly 170 points to score its biggest jump in six months. The S&P 500 rose nearly 20 points to close near its high for the year.