Updated from 2:15 p.m. EDT
Ben Bernanke, the White House economic adviser who built a reputation for scholarship and prudence during a rapid climb to power, was nominated Monday by President Bush to succeed Alan Greenspan as Federal Reserve chairman.
Bush said he sought a candidate with "impeccable credentials, sound policy judgment and good character" in choosing a successor to Greenspan, who will leave office Jan. 31. The 51-year-old Bernanke promised to work in collaboration with other Fed members to maintain monetary stability.
"Our understanding of the best practice in monetary policy evolved during Alan Greenspan's tenure at the Fed and it will continue to evolve in the future," Bernanke said. "If I am confirmed to this position, my first priority will be to maintain continuity with the policy and policy strategies established during the Greenspan years."Bernanke, who wrote and voted as a moderate in the Greenspan mold while a Fed governor from 2002 to 2005, is chairman of the White House council of economic advisers. He is the former head of Princeton's economics department and was educated at Harvard and the Massachusetts Institute of Technology. "This is an excellent appointment that will promote stability and confidence in the market, since Bernanke is clearly a Fed insider and a familiar face that people already trust," said Steven Wood, chief economist with Insight Economics. "It would be hard to argue that monetary policy would've been any different over the last year under Bernanke than it has been under Greenspan." Stocks welcomed the choice, with the Dow Jones Industrial Average gaining 170 points on the session. The 10-year Treasury bond fell 15/32 to yield 4.44%. At a time when President Bush is battling criticism of his nomination of Harriet Miers to the Supreme Court, the choice of Bernanke was viewed as politically safe. "There might be some concern, based on comments made by Bernanke back when the market was concerned about deflation, that he will not be hawkish enough on fighting inflation, but I actually believe that would be a mistake," said Drew Matus, chief economist with Lehman Brothers. "Bernanke would probably be an inflation hawk, and he is a known commodity, since he has worked at the Fed. He has worked alongside Greenspan, who is now a legend, and we have a long body of evidence about his views on monetary policy." Among the other candidates, which included former White House adviser Glen Hubbard and Harvard professor Martin Feldstein, Bernanke is probably the least likely to roil stock and bond markets. The Georgian has shown that he shares Greenspan's philosophy for containing inflation via incremental steps that are carefully signalled to markets. Indeed, he has occasionally spoken in favor of articulating specific inflation "targets," a position that would take current Fed openness a step further. "First and very importantly, such a step would increase the coherence of policy," he said in a June 2004 interview. "Currently, the FOMC makes its decisions without an agreed-upon definition of price stability or of the inflation objective, and one wonders how oarsmen pulling in different directions can get the boat to go in a straight line. "I think the FOMC's decision-making process would be improved if members shared a collective view of where we want the inflation rate to be once the economy is on a steady expansion path." In a January 2000 Wall Street Journal opinion column titled "What Happens When Greenspan is Gone?" Bernanke and two coauthors stressed the importance of continuity at the end of the Greenspann's term. They argued that inflation targets would promote it. "Inflation targeting is a monetary-policy framework that commits the central bank to a forward-looking pursuit of low inflation -- the source of the Fed's current great performance -- but also promotes a more open and accountable policy-making process," the column said. "More transparency and accountability would help keep the Fed on track, and a more open Fed would be good for financial markets." Greenspan, an appointee of Ronald Reagan who has served under four presidents, plans to retire when his current term ends on Jan. 31. He has been Fed chairman for 18 years. Over that span, Greenspan guided the Fed through a series of crises, including the stock market crash of 1987, the savings and loan crisis, the terrorist attacks of Sept. 11, 2001, and the collapses of Long Term Capital Management and Enron. The economy has emerged from his tenure with only modest inflation gains, having weathered several recessions that were relatively shallow. For those achievements, his admirers will likely place him next to his predecessor, Paul Volcker, as one of the best central bank chiefs. Critics will accuse him of promoting speculation and risk by flooding the market with credit during downturns and failing to rein in monetary policy the late 1990s bull market. "It's really too early to make a clear judgment about Greenspan's legacy since we don't know yet how the current credit bubble in the market and the housing boom is going to play out," said Marty Fridson, the publisher of Leverage World. "Those issues will be left to his successor. But in the near-term, Bernanke is probably going to inspire confidence as a knowledgeable and capable candidate for the post."