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Fed's Bernanke Chosen to Lead Bush's Economy Panel (Update2)

Fed's Bernanke Chosen to Lead Bush's Economy Panel

April 1 (Bloomberg) -- Federal Reserve Governor Ben S. Bernanke is President George W. Bush's pick to become the next chairman of the administration's Council of Economic Advisers, the White House said in a statement.

Bernanke, 51, joined the central bank 2 1/2 years ago and since then moved bond markets through speeches more often than any member except Fed Chairman Alan Greenspan. If confirmed by the Senate, Bernanke would join the administration as Bush pushes to overhaul Social Security and extend parts of $1.85 trillion in tax cuts that expire by 2010.

``This is a top-notch appointment,'' said former Fed Governor Lyle Gramley, now an economic adviser at the Stanford Washington Research Group in Washington. ``He has experience in the practical affairs of monetary policy, and he's certainly going to be one who will support anti-inflationary policies.''

The Princeton University economics professor pushed for more open debate on the Federal Open Market Committee, encouraged policy makers to consider numeric inflation targets and helped bring about the earlier release of meeting records. Today's nomination may increase Bernanke's odds of being named by Bush to replace Greenspan, 79, whose non-renewable term is scheduled to end Jan. 31 after more than 18 years.

``This move today keeps Bernanke solidly in the top tier of possible replacements'' for Greenspan, said Chris Rupkey, senior financial economist for Bank of Tokyo-Mitsubishi in New York. ``It will be quite an intellectual loss for the Fed.''

Confirmation

Bernanke will remain at the central bank as the Senate considers his nomination and, during that process, won't vote on monetary policy or attend meetings of the policy-setting FOMC, Fed spokeswoman Michelle Smith said. The next meeting is May 3.

``I am honored by the president's intention to nominate me,'' Bernanke said in a statement. ``I look forward to this new opportunity.''

Since joining the FOMC in August 2002, Bernanke voted with the committee's majority each time on interest rates. Bernanke raised concern in speeches during his first year about the possibility of deflation, or broad price declines that hurt economic growth. The Fed cut interest rates to 1 percent in June 2003 to help avoid that possibility.

The economy strengthened and the Fed has raised the overnight bank-lending rate seven times since June 2004 to head off faster inflation. The rate is now 2.75 percent.

Bernanke's speeches were second only to Greenspan's in their effect on U.S. two-year Treasury yields during the past three years, according to research by Macroeconomic Advisers LLC, a St. Louis-based forecasting group.

Fed Candidates

One possible candidate to replace Bernanke on the Fed board is U.S. Treasury undersecretary John Taylor, said Ken Rogoff, a Harvard University economics professor who has known Bernanke for 30 years. Taylor, 58, is known for his academic work on central banks and interest rates, and designed an economic rule named for him that uses data to predict the correct level of interest rates. Taylor announced on March 21 that he will resign from the Treasury Department as of April 22.

Federal Reserve governors are nominated by the president and confirmed by the Senate to 14-year terms.

The Augusta, Georgia-born Bernanke broke with Greenspan by supporting inflation targets, an idea now backed by regional Fed bank presidents including Gary Stern of Minneapolis and Anthony Santomero of Philadelphia.

`A Prominent Voice'

``He has been a prominent voice at the Fed, someone who has spoken his own mind and set a path somewhat separate from Greenspan,'' Robert Brusca, former chief of the New York Fed's international financial markets division, said before today's announcement. ``It's interesting that as the inflation-targeting issue comes to a head, he's leaving.''

Before becoming a central banker, Bernanke served on the National Bureau of Economic Research's business-cycle dating committee, the group that determines the dates of U.S. recessions, and was a visiting scholar at the Fed banks of Philadelphia, Boston and New York.

He earned a degree from Harvard University in 1975 and a doctorate from the Massachusetts Institute of Technology in 1979. He taught at Stanford University before moving to Princeton. He and his wife, Anna, have two children.

Douglas Lee of Economics From Washington, a private consulting firm in Potomac, Maryland, and Brookings Institution economist Barry Bosworth agreed that Bernanke's new job may boost his chances of succeeding Greenspan.

Succession

``This gives him an opportunity to work more closely with members of the administration's economics team and people in the Wall Street financial community,'' Lee said.

Bosworth said that other potential successors to Greenspan include Taylor and Martin Feldstein, who was CEA chairman from 1982 to 1984 and is now president of the NBER.

Harvey Rosen, who currently holds the top job at the council, took over after Harvard economist Greg Mankiw resigned in February. Greenspan was chairman of the council in the Gerald Ford administration from 1974 to 1977.

Bernanke is ``an inspired choice,'' said former Fed Vice Chairman Alan Blinder, now an economics professor at Princeton. ``He's terrific, smart, efficient, hard-working and has great judgment.''

Asked what challenges Bernanke would face in his new post, Blinder, a Democrat, said, ``The administration's policy is set and he'll have to defend it.''

To contact the reporters on this story:
Brendan Murray in Washington [e-mail];
Vivien Lou Chen in San Francisco at [e-mail]

To contact the editor responsible for this story:
Kevin Miller in Washington at [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000087&sid=aEaaxIh.DAus&refer=top_world_news