As was widely rumored, Ben Bernanke has been appointed by President Bush to succeed Alan Greenspan as the Federal Reserve chairman.

The appointment of Bernanke, currently serving in the White House as the chairman of the Council of Economic Advisors, removes speculation about who Bush would name to the role. But it will not fully remove many key uncertainties facing the markets.

Equities, which are up sharply as of 1 p.m. EDT, might be benefiting from the Bernanke choice partly because it is assumed that the famed "Greenspan put" will be rolled into the "Bernanke put."

The Greenspan put, of course, is a safety net based on the assumption that Fed Chairman Alan Greenspan is ready to respond to any force that would ultimately threaten the welfare of the stock market. Throughout Greenspan's tenure, there are in fact many instances where numerous factors seemed to threaten the stock market and Greenspan's actions helped to thwart the threat. In 1998, for example, when the Asian financial crisis collided with the Russian debt default to produce harrowing times in world equity markets, the Federal Reserve lowered interest rates three times in a direct response.

Here is the short statement released by the Fed on Sept. 29, 1998, following the first of the three cuts:
The action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies and of less accommodative financial conditions domestically. The recent changes in the global economy and adjustments in U.S. financial markets mean that a slightly lower federal funds rate should now be consistent with keeping inflation low and sustaining economic growth going forward.

Importantly, no reversal of the rate cuts would occur until June 1999, when an overheating of U.S. economic growth prompted the Fed to raise interest rates. Arguably, the hikes should have occurred sooner than that, particularly given the buoyancy of the stock market.

Bernanke is perhaps most known for his November 2002 speech wherein he suggested a number of possible solutions to combating deflation pressures that were becoming more apparent at that time. The speech, titled "Deflation: Making Sure 'It' Doesn't Happen Here," included many aggressive remedies that some could say is evidence that a "Bernanke put" would in fact exist under his chairmanship.

Bernanke notably suggested that the U.S. has a "printing press -- or today its electronic equivalent -- that allows it to produce as many U.S. dollars as it wishes at essentially no cost."

Uncertainties Remain

The financial markets will have to contend with a few distinct uncertainties:

  • Policy statements: Greenspan writes the current ones; how will Bernanke pen his?
  • Consensus building: In a Fed study written earlier this year, it was found that the rate of disagreement at FOMC meetings has been much larger than one would expect based on official dissents alone. The study noted that the rate of disagreement at the meetings was 30% during Greenspan's tenure, much higher than the official dissention rate of 7.5%. The new Fed chairman will have to be a consensus builder if he is to keep a Fed that is "on message" when it delivers statements to the public.
  • Flexibility: A hallmark of the Greenspan Fed has been his flexibility. Bernanke appears to have similar characteristics, but has advocated for inflation targeting, which is arguably a very rigid system.
  • Public speaking: Despite the famed ways in which Greenspan seemingly speaks out of both sides of his mouth, Greenspan has been a master of the use of language, which has helped him to deliver his messages in ways that have guided the economy and the markets well. In my eyes, Bernanke is not as smooth in his delivery.
  • Academics vs. real world: Greenspan would often toss out the textbooks when it seemed necessary. Can Bernanke?
  • Savoir faire: Greenspan has often been seen as knowing the right thing to do at the right time. Only time will tell whether Bernanke has this ability.
  • Whatever the case, when Bernanke dons the cap of Fed Chairman, he will almost certainly want to assert himself as an inflation fighter as strongly as did his previous two predecessors, Greenspan and Paul Volcker.
    Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from