Greenspan to quit as Fed Reserve chairman
(AP)
Updated: 2006-01-31 11:28

On Greenspan's watch, the economy _ from March 1991 to March 2001 _ posted its longest continuous expansion in history. The two recessions during his tenure were mild.

He confronted crises including a stock market crash in 1987 _ just two months into his job; financial upheavals in some parts of the world in the late 1990s; the bursting of the stock market bubble in 2000 that wiped out trillions of dollars in investor wealth; and the September 11, 2001, terror attacks.

In addition, Greenspan maintained the Fed's political independence in making interest-rate decisions and defended its regulatory turf, said Kevin Hassett, a former Fed economist who directs economic policy studies at the American Enterprise Institute.

Bernanke will want to show early on that he's the new alpha dog on the block, Hassett said. The message he needs to convey is akin to saying: "Here I am. I'm the new alpha. Don't-mess-with-me kind of speech," Hassett said.

One of Bernanke's first challenges as Fed chief will be deciding when to end the central bank's nearly 2-year-old rate-raising campaign, economists said.

The stakes are high. If he stops too early, inflation could become a problem, it he stops too late, the economy could be hurt. The first interest-rate meeting Bernanke will preside over will be on March 28.

Clues on Bernanke's thoughts about the future course of interest rates could come on February 15 when he delivers the Fed's twice-a-year report on the economy to Congress.

Bernanke takes over as the economy faces some potential challenges.

Questions persist whether the housing market will continue to gradually decline and avoid a crash; and whether foreigners will maintain a hardy appetite for investing in the United States and continue to finance ballooning budget and trade deficits.

Energy prices pose another wild card for the economy _ and for inflation.

Bernanke has the academic credentials for the Fed job, although he never worked on Wall Street and has limited political experience.

He will need to build support among his Fed colleagues _ not only on interest rate policies but on other matters that the bank may confront down the road.

Dissent on interest-rate votes was a rarity at the Fed under Greenspan. Former Fed governor Lawrence Lindsey said it would be "cataclysmic" to Wall Street investors if there were a flurry of dissenting votes under Bernanke. That would create confusion with investors and would probably roil the markets. But Lindsey doubts this would happen under Bernanke.

Earning credibility early on with Wall Street will be another test for Bernanke as well as crafting a uniform message about the Fed's outlook on interest rates and the economy to investors, the public and politicians, economists said.

The Fed chief oversees interest rate policy in the United States, which affects investors large and small. He also is responsible for regulating the nation's banking system to ensure its safety and soundness and is in charge of maintaining the stability of the country's financial markets.

As Bernanke takes center stage, Greenspan will move out of the main spotlight _ but he'll still be keeping tabs on economic conditions. He plans to open his own economic consulting business and also may appear on the speaking circuit and write a book.