Now that Ben Bernanke has been tapped to succeed Alan Greenspan atop the Federal Reserve, his public writings and commentary take on the status of scripture for those hoping to chart the future of monetary policy. Broadly speaking, Bernanke is viewed as a straight-talking economist who avoids ideological and political stances while stressing the importance of containing inflation and making the Fed a transparent and independent body. An admirer of Greenspan, Bernanke has shared many of the current chairman's views on monetary policy, although not blindly. The major rift between Greenspan and his probable successor comes from Bernanke's longtime support of ''inflation targeting,'' which holds that a central bank should publicly establish a preferred rate of inflation and adjust monetary policy to achieve it. "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," Bernanke said in a 2004 interview. Other central banks, such as the Bank of England and the European Central Bank, have adopted formal targets. Greenspan and some critics believe such as move would hopelessly complicate the Fed's task and reduce the central bank's flexibility. Still, the trend toward greater openness as the Federal Reserve has increased in recent years. In a watershed Fed shift in 2003, the Fed began sending signals to financial markets about its upcoming policy moves by stating it would keep interest rates low for a ''considerable period.'' Later, the Fed changed its signal by telling investors for the last year that it would raise rates at a ''pace that is likely to be measured.'' While Greenspan oversaw the shift, some observers saw Bernanke's influence in it. Besides being known for inflation targeting, Bernanke is most closely associated with a 2002 speech that espoused preemptive action to cut short-term rates when an economy is at risk of deflation. At the time, the speech pushed deflation onto center stage just as rates were headed lower for an extended period. Some say Bernanke's logic created the foundation upon which a too-accommodative policy was built.
Still, leaving out that mostly theoretical discussion, Bernanke has consistently stressed the importance of containing inflation. As a Fed governor, he spoke out candidly about the threats posed to the U.S. economy by low savings rates and a spiraling trade deficit and federal deficit. Benanke has been chairman of the President's Council of Economic Advisors since June. After a swift confirmation, Bernanke took up the mantle of policy champion for his boss, backing proposals that included the extension of tax cuts enacted three years ago. Wading into what may be the most important debate in financial markets now, Bernanke recently predicted that the booming housing market will soon cool off, but said that shouldn't pose a danger to the country's overall economic health. ''House prices are unlikely to continue rising at their current rates,'' he told Congress. ''However, as reflected in many private-sector forecasts, a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.'' In his recent prepared testimony before Congress, Bernanke said long-term inflation expectations "remain low and stable based on measures of inflation compensation derived from inflation-indexed Treasury securities." He added, "The stability in core inflation and inflation expectations does suggest overall inflation is likely to return to levels consistent with price stability in coming quarters." In the wake of Hurricane Katrina, Bernanke predicted the disaster would likely shave a percentage point off GDP growth in the fourth quarter, but he said that the dip would be temporary, and that the government's relief efforts would lead to job growth and other forms of long-term economic stimulation. As for soaring energy and gas prices, Bernanke has long said the U.S. economy is adjusting successfully to higher prices, and he forecasted that gas prices would eventually drop back down to pre-Katrina levels. When politicians on Capitol Hill called for a rollback in the Bush tax cuts in order to pay for hurricane relief and the war in Iraq, Bernanke said cuts should be made in spending in order to rein in the federal deficit. He warned that delaying the tax cuts would have a worse effect. "There would be an increase in uncertainty, and there may be some impact on growth," he said, adding that the uncertainty and delay "would be costly in the sense that investors would not know what to anticipate."