ISU economists assess Bush's Fed nominee
TERRE HAUTE, Ind. - President Bush's choice as the first new Federal Reserve Board chairman in 18 years would be more forthcoming than outgoing Chairman Alan Greenspan and would not hesitate to dig deep into his toolbox to keep the economy humming, Indiana State University economists say.
Bush this week nominated Ben Bernanke, 51, to the post from which the 79-year-old Greenspan will retire next year. Bernanke served alongside Greenspan on the Fed's board of governors from 2002 until June of this year, when Bush tapped him to head the President's Council on Economic Advisers. He previously served in academics, most recently as chair of the economics department at Princeton University.
If confirmed by the Senate, Bernanke will take over as Fed chair when Greenspan retires Jan. 31.
Bernanke "takes the Fed's responsibilities as active policy maker seriously," said Don Richards, professor of economics. "By that I mean that he won't adopt a strict monetary rule for the Fed but will use the policy instruments in a discretionary manner to try to keep the economy going at full employment and steady (low) inflation.
"Bernanke has talked about a long run target for the inflation rate but he emphasizes that it is a long run target and he would not be dogmatic about monetary policy in the short run if conditions required stimulus. He is also a student of the Great Depression, which I find encouraging," Richards said.
A policy of inflation targeting represents a potential difference between Bernanke and Greenspan, said Richard Lotspeich, associate professor of economics.
While other central banks around the world have embraced inflation targeting, Greenspan has resisted it on the basis that imposing specific targets would limit the Fed's flexibility to respond to unfolding economic circumstances, Lotspeich explained.
"I would not expect to see a change in this direction early in Bernanke's tenure. The key word is continuity," Lotspeich said.
Bernanke is an "economist's economist" and a well-rounded choice to head the Fed, Lotspeich said. He predicts Bernanke will have the same level of political savvy for which Greenspan is famous.
"He clearly is sensitive to the potential volatility of financial markets in response to statements coming from the main U.S. banking authority," Lotspeich said. "Whether he will be as deft in dealing with members of Congress remains to be seen. I expect he will handle this well, albeit with a style different from that of Greenspan."
One tension in monetary policy is how much to target inflation versus stimulating growth and reducing unemployment, noted Debra Israel, assistant professor of economics.
"I believe (Bernanke's) focus will be more on long-term stability and growth and that he will be creative in his use of the monetary policy tools available," Israel said. "He also has supported continuing openness of Federal Reserve policy and understands the importance of credibly influencing future expectations."
Richards expects a Bernanke-led Fed would be "more open and forthcoming about Fed policy and decision making than Greenspan. He believes that the economy is best served by more information."
"I have a feeling...that his ego isn't as big as Greenspan's and I would bet that policy meetings have more of the kind of give and take that we might expect to find in an academic department seminar," Richards said. "The fact that he hasn't been raised to the status of a demi-god is also a good thing."
-30-
Contacts: Don Richards, professor of economics, ecdrich@isugw.indstate.edu; Richard Lotspeich, associate professor of economics, (812) 237-2176 or eclots@isugw.indstate.edu; Debra Israel, assistant professor of economics, (812) 237-2165 or ecisrael@isugw.indstate.edu
Writer: Dave Taylor, media relations director, Indiana State University, (812) 237-3743 or dave.taylor@indstate.edu
ISU Communications and Marketing: (812) 237-3773 or http://www.indstate.edu/news
|
