Ben Bernanke Becomes (Fed Res) Banker

Ben Bernanke, chairman of the White House Council of Economic Advisers, will succeed Alan Greenspan as chairman of the Federal Reserve.

Nominating Mr Bernanke on Monday October 24th, George Bush said he was the “right man” to replace a “legend”. Wall Street seems to agree. Financial pundits have heaped praise on Mr Bush’s choice. Stock prices rose on the news, the dollar held steady and although bond prices fell—yields on ten-year Treasuries hit a six-month high of 4.5% on Tuesday and rose thereafter—they had seen worse. When Mr Greenspan was named as Paul Volcker’s successor in 1987, stocks fell and bonds had their worst day in five years.

Mr Bernanke is one of America’s foremost monetary economists. He was a Fed governor between 2002 and 2005, moving from that job to become chairman of Mr Bush’s Council of Economic Advisers. Whereas Mr Greenspan was regarded as a partisan figure before he became chairman of the Fed, few of Mr Bernanke’s academic peers even knew he was a Republican until he moved to the White House.

The truth is that big ideas and a stellar academic résumé are not always hallmarks of a good central banker. Arthur Burns, the only other academic to lead the Federal Reserve, in the 1970s, was a big thinker but a weak inflation-fighter. Good central bankers need technical competence, political smarts and sound judgment. Mr Bernanke has the technical competence and seems to have the political smarts (after all, he got the job). The big bet, therefore, is on his judgment.

[ Ben ]