Answers About Ben Bernanke


The long-speculated changing of the guard at the Federal Reserve is now a reality. On Oct. 24, President Bush nominated Presidential economics adviser and former Fed Governor Ben Bernanke to replace Alan Greenspan as head of the central bank in February, 2006. Bernanke, 51, will be only the 14th Fed chairman. He was a professor at Princeton University and chairman of the economics department.

The implications of the change are enormous, of course, and investors will no doubt have plenty of questions about the new Fed chief and his policy orientation. David Wyss, chief economist for Standard & Poor's, provides answers to some of those questions:

Is Chairman Bernanke likely to change Federal Reserve policy?

I would expect Bernanke to follow a very similar path to what Chairman Greenspan would have done. He was a strong supporter of Greenspan when he was on the Fed board (2002-05) and was in sympathy with the chairman's views on most monetary policy issues (see Greenspan's Signature Achievement").

What are Bernanke's qualifications for the job?

Bernanke has probably the best academic qualifications for chairman in Fed history. He has been chairman of Princeton's economics department and is one of the leading experts in monetary theory. His experience on the Fed board has given him inside knowledge of the Fed and financial markets (see Bernanke Gets His Chance"). As chairman of President Bush's Council of Economic Advisers [the White House advisory group of which he's now the chairman] since June, 2005, he has gotten to know the major figures in Washington, although he hasn't had as much Washington experience as chairmen Greenspan and [Paul] Volcker when they were appointed.

If Bernanke has a weakness, it's his inexperience in practical finance, since he hasn't been in the private sector, and his tenure at the Fed board was relatively brief.

Is the new chairman likely to push for inflation targeting?

Bernanke was a strong supporter of inflation targeting as an academic. He'll probably shift the Fed toward a more explicit targeting regime. We [at Standard & Poor's] doubt he'll move to a single, inflation-only, target.

Will interest rates still go up under the new chairman?

Greenspan is likely to raise interest rates to an apparent neutral rate before he leaves at the end of January, 2006. We expect that the new chairman will not have to change rates until something happens to change the U.S. economic outlook, which means rates are likely to be stable for most of the first year of his tenure.

Will the new Fed boss have as much control over policy as Greenspan did?

It usually takes a few months for any new Fed chairman to get the confidence of the markets and the Federal Reserve Board. Bernanke, however, starts with the advantage of knowing the board and the Fed staff, which should make his task easier. Markets, particularly in foreign exchange, are likely to test the new chairman early, however. Watch for a move in the dollar's valuation and the Fed's reaction to it.

Is a confirmation fight likely?

One advantage to this nomination is that Professor Bernanke was just confirmed as chairman of the Council of Economic Advisers last summer. So, since he has been so recently vetted, there's probably clear sailing for him in the Senate confirmation process.

Why did President Bush announce Bernanke's nomination now?

The timing is intended to get the confirmation done before Greenspan's term expires Jan. 31. With the other fights pending in Congress and the holiday recesses looming, more lead time than normal seemed needed.

Note: A version of this interview originally appeared on Standard & Poor's RatingsDirect


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