Bernanke takes reins at the Fed
(China Daily)
Updated: 2006-02-02 07:15

WASHINGTON: White House adviser Ben Bernanke won Senate approval on Tuesday to assume one of the world's most influential economic posts chairman of the US Federal Reserve just after the central bank raised interest rates a 14th straight time.

In 19 minutes that marked a new era at the Fed, Capitol Hill lawmakers approved Bernanke by voice vote to succeed retiring Alan Greenspan, and policy-makers lifted short-term rates a quarter percentage point to 4.5 per cent.

It was the 149th and final policy meeting for the outgoing Fed chief after over 18 years in charge. Bernanke was sworn in for a renewable four-year term as chairman and a 14-year board term at a private ceremony at the Fed yesterday.

"I know this institution will go on doing extraordinary things, and I will look on from the sidelines and cheer," Greenspan told 180 guests at a farewell luncheon after Tuesday's rate meeting.

Greenspan has agreed to to be honorary adviser to British finance minister Gordon Brown on global economic change after stepping down.

Global financial markets will watch closely to assess what changes Bernanke, a former Fed governor, will make at the central bank now that he has the top job.

Treasury bond prices fell after the meeting on the prospect the Fed has not finished a cycle that began in mid-2004, but later recovered. The dollar shook off early weakness while stocks closed lower.

Bernanke's nomination was so uncontroversial that some senators were quoted in newspapers expressing surprise that hearings on it had already been held.

"Ben has provided wise counsel and good advice as a member of my economic team, and he will serve our nation with great distinction," President George W. Bush said in a statement.

Bernanke, 52, is a widely respected monetary economist and a vocal proponent of inflation targeting at the Fed, a move that would create more formal policy rules than practised by Greenspan, who relied heavily on intuition and flexibility.

But analysts were not predicting seismic shifts.

"He'd like to bring in inflation targeting. (But) he must build consensus to do so, and he doesn't have consensus now," said economist Diane Swonk of Mesirow Financial in Chicago, adding that change would be an "evolution."

Economist Mark Zandi of Economy.com also sees Bernanke hewing to a steady course. "He wants to ensure the consistency of conduct of policy to reassure the rest of the global economy that nothing basic has changed," Zandi said.

Bernanke was a Fed governor for three years before a June move to chair the White House Council of Economic Advisers. That helped him build a relationship with colleagues, one he has kept up through meetings with Fed Vice-Chairman Roger Ferguson and Governor Donald Kohn, among others.

Still, economists say he must earn the investor trust and inflation-fighting credibility his predecessor enjoyed.

Greenspan, 79, has led the US central bank since August 1987 the second-longest tenure in Fed history. And the man who has argued for a higher US retirement age plans to keep working with a consulting business, plans for a book and speaking dates.

"Alan Greenspan was an institution for financial markets worldwide," Michael Heise, chief economist for Dresdner Bank in Frankfurt said on Tuesday.

Greenspan's success in keeping inflation curbed leaves his successor in a relatively strong starting spot.

Tuesday's Fed statement outlining the rate rise also gave Bernanke a free hand to chart his own course. Policy-makers altered the statement to say more rate rises "may" be necessary, rather than that they are "likely."

(China Daily 02/02/2006 page1)