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Monday, October 24, 2005

Bush Nominates Bernanke to Succeed Greenspan as Fed Chief - New York Times

Bush Nominates Bernanke to Succeed Greenspan as Fed Chief - New York TimesOctober 24, 2005
Bush Nominates Bernanke to Succeed Greenspan as Fed Chief

WASHINGTON, Oct. 24 - President Bush nominated Ben S. Bernanke, his top economic adviser, to replace Alan Greenspan as chairman of the Federal Reserve Board.

Calling him the "right man to build on the record that Alan Greenspan has built," Mr. Bush said Mr. Bernanke has "built a record of excellence as both economist and policy maker." He spoke at the White House flanked by Mr. Bernanke and Mr. Greenspan, who did not speak..

In brief remarks Mr. Bernanke, 51, sought to reassure investors that there would be few immediate changes at the Fed when he takes over early next year. He praised Mr. Greenspan and said he would work with colleagues at the Federal Reserve to "ensure the prosperity of the American economy."

"If I am confirmed to this position, my first priority will be to maintain consistency and continuity with the policies established during the Greenspan years," Mr. Bernanke said.

A former Federal Reserve governor, Mr. Bernanke has long been considered the favorite for the post, according to political experts, Wall Street analysts and economists. Mr. Bush appointed Mr. Bernanke, a Republican and former professor at Princeton University, to head the White House Council of Economic Advisors earlier this year.

Other candidates considered to have been on the short list were R. Glenn Hubbard, a former top adviser to Mr. Bush and an architect of the president's tax cuts, and Martin S. Feldstein, a Harvard University economics professor and president of the National Bureau of Economics Research.

Mr. Greenspan is expected to step down Jan. 31 and will be the second-longest serving chairman of the Fed. He is widely credited for helping foster the 1990's economic boom and blamed by some for not doing enough to reign in the financial excesses of the decade.

The stock market was up after the announcement: the Standard & Poor's 500 stock index was up 14.47 points, to 1,194.06; the Dow Jones industrial average was up 117.51 points, to 10,332.73.. United States treasuries fell and the yield on the 10-year note, which moves in the opposite direction of the price, was up to 4.434 percent from 4.386 percent on Friday.

Earlier this month, Mr. Bush said he would like to nominate someone independent from politics but he has also made clear that he would like to have a personal rapport with the candidate. Given the Fed's critical role in guiding the economy, the candidate would also have to reassure Wall Street.

Mr. Bernanke (pronounced ber-NANK-ee) is a respected economist who has assiduously stayed away from partisan politics until his appointment to the White House post, friends and colleagues say. He studied economic history at Harvard and then earned a doctorate in economics at the Massachusetts Institute of Technology.

He is widely respected by liberals and conservatives. Brad DeLong, an economist at the University of California who is a frequent critic of the Bush administration, called Mr. Bernanke "a very good choice" on his Web site today.

Senator Charles E. Schumer, Democrat of New York, said: "We need a careful, non-ideological person who understands that the Federal Reserve's main job is to fight inflation and Ben Bernanke seems to fit that bill. But 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?"

Mr. Greenspan will leave Mr. Bernanke a growing economy that has, so far this year, withstood a sharp rise in energy prices and two devastating hurricanes. Since June 2004, the Fed has raised short-term interest rates 11 times to 3.75 percent and officials have recently signaled they will continue raising rates to head off any inflation spillover from high energy costs.

The consumer price index jumped to an annual rate of 4.7 percent last month, with most of the gain attributable to higher energy costs. Excluding energy and food, the core inflation rate was 2 percent.

"The departing chairman will have done much of the hard work of tightening before the appointment of the new chairman," Richard Hoey, chief economist and investment strategist of Dreyfus, the mutual fund company, wrote in a note to clients.

The Federal Open Market Committee will have three more meetings before Mr. Greenspan is expected to leave, on Nov. 1, Dec. 13 and Jan. 31.

Mr. Bernanke has been a vocal advocate of setting an explicit inflation target that can be used to both guide monetary policy and make it easier for investors to anticipate Fed policy. The Bank of England has used an inflation target - now at 2.5 percent - since 1992.

But Mr. Greenspan has opposed the idea of an explicit inflation target on the grounds that it would reduce the Fed's flexibility and be hard to carry out in practice.

Edmund L. Andrews reported from Washington for this article and Vikas Bajaj from New York.

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