FED WATCH: Bernanke Blooms As Board's Foremost Idea Man
26 Feb 12:05
By Michael S. Derby
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Federal Reserve Governor Ben Bernanke, despite his
relatively brief tenure, is making waves as the foremost "idea man" of the
newest slate of U.S. central bank officials.
Since taking office in the summer of 2002, the former Princeton professor has
been the first to describe the length to which the central bank would be
willing to go to fight off deflation. He's said he favors a more rule-based
decision-making regime for conducting monetary policy.
Those things would, by themselves, be a lot for any Fed governor, especially
a new one - but Bernanke didn't stop there. He's also laid out some of the ways
in which the Fed could stimulate the economy if it expended the leverage
afforded by adjusting short-term interest rates.
And most recently, Bernanke has described in detail what he believes are the
fundamental strengths of the economy, addressing critics that argue its
problems go much deeper than the effects of the looming war in Iraq.
Bernanke's also earning notices for another reason. Unlike other officials
who in the past have struck out so dramatically, the Fed governor's strong
views haven't marginalized him from the consensus-driven decision making
process that's dominated the Fed under Chairman Alan Greenspan.
Bernanke is "very vocal" and "he's staking out what can be regarded as some
controversial positions," said William Sullivan, an economist at Morgan Stanley
in New York. "He has some independent thinking here," but there's no sign it
has left him running afoul of the Fed's direction under Greenspan, he added.
The role Bernanke seems to be carving out has precedent. Over recent years
there's normally been at least one intellectual counterweight to the
overarching vision guided by Greenspan.
Fed watchers say Bernanke is dodging the fate that befell provocative
governors likeAlan Blinder and Laurence Meyer. For different reasons, those
two officials strayed far enough from the Fed's main line of thinking as to be
seen as outsiders, out of step with Greenspan's direction.
Tactical Disagreement
Bernanke is in some key ways "away from the center of gravity, but in a
different way from Blinder and Meyer," said Lou Crandall, chief economist with
Wrightson ICAP in Jersey City, N.J.
Crandall said that Blinder, who ended his Fed govenorship in 1996, was at
odds with Greenspan and other officials in his willingness to tolerate
inflationary pressures in order to keep employment levels up.
Meyer left the Fed as of the beginning of 2002. His break with the consensus
was technical, Crandall said, as Meyer endorsed different economic modeling and
forecasts than Greenspan.
Bernanke's views on inflation targeting - which means that the central bank
selects an acceptable level of inflation and then uses monetary policy to
maintain that mark - aren't supported by other Fed officials. They also rub up
against the decidedly flexible method of monetary policy that has defined the
Greenspan reign.
But while Bernanke's views create some disagreement at "tactical levels" they
leave him and other Fed officials fully on board about the goals, Crandall
said. "I don't think it makes him an outsider; I don't think there's any sense
at the Fed he's rocking the boat," he said.
Bernanke's speech last Friday was a key example in which he presented a
strong economic case that provided a foundation for earlier officials' remarks.
The Fed governor said that while uncertainties over such major issues as a war
in Iraq are clearly holding the economy back, both the household and financial
sectors remain solid.
The speech addressed criticism from some quarters that said the Fed had been
missing the story - that the weakness in the U.S. economy cannot be tied solely
to the threat of war and terrorism, and that the problems lie deeper thanthe
Fed will admit.
John Ryding, chief U.S. economist with Bear Stearns, called the speech "a
major defense" of the Fed's current economic view. Others said that while
critics may disagree with Bernanke's conclusions, they can no longer say the
Fed doesn't back up its position with a detailed case.
Open Field
Bernanke's steps into the limelight have been accentuated by the relative
silence of his fellow governors. Several - Susan Bies, Mark Olson, Edward
Gramlich, and to a large extent Roger Ferguson - focus mainly on regulatory and
technical issues for the Fed.
That leaves Greenspan, Bernanke and Donald Kohn as the board's prime
economists. Kohn is a lifetime Fed staffer who before becoming governor was
Greenspan's chief advisor. So far, Kohn has seemingly carried over the silence
of a Fed insider to his role as a policy maker and has said very little in
public about his views on the economy and Fed issues.
"Kohn could just as easily fill the role" Bernanke's taken, said Stephen
Stanley, senior market economist with RBS Greenwich in Greenwich, Conn. "I
guess he's chosen to be a quiet, behind the scenes type" whose views in any
case likely mirror the chairman he served for so long, he said.
"There are a limited number of people" on the Fed who speak forcefully on
economic topics, and Bernanke is one of those leaders, Stanley said.
-Michael S. Derby, Dow Jones Newswires; 201-938-4192;
michael.derby@dowjones.com
(END) Dow Jones Newswires
02-26-03 1205ET |
