Street Split Over Bernanke Appointment

Updated from 1:23 p.m. EDT

Shortly after telling reporters his choice to succeed Alan Greenspan, President Bush repeated his faith in Harriet Miers, his controversial selection for the remaining open seat at the Supreme Court.

That may help explain why stocks rallied and bonds dipped -- even before Bush confirmed he had chosen Ben Bernanke, the chairman of the White House council of economic advisers, to be the next Federal Reserve chairman.

Bernanke's appointment, like Miers', reflects political considerations, although perhaps not as many as would have attended the nomination of Glen Hubbard or Larry Lindsey, both former CEA chairs.

Unlike Donald Kohn, who was reportedly Greenspan's preferred candidate to succeed him, Bernanke will start with Wall Street not convinced that he is fully independent, says David Powell, currency analyst at IDEAGlobal.

"Even before being appointed to be CEA chairman, which is far from a politically neutral appointment, [Bernanke] was aligned with the Bush tax cuts," Powell says. "Bush, who often mentions loyalty, has confidence in him."

Bush may have learned a lesson from the early 1990s, when Greenspan kept on hiking interest rates during the re-election bid of his father, George H.W. Bush, a move some observers say may have cost Bush senior the presidency.

Beyond politics, Bernanke's own track record as Fed governor and his close alignment with Bush's economic philosophy suggest less emphasis on inflation-fighting and a less-hawkish approach to monetary policy.

He was one of the most vocal Fed governors warning about the possibility of deflation several years ago. He is also known to be an advocate of inflation targeting, or setting a clear level for tolerable price increases, contrasting with Greenspan's more vague "risk-management" approach.