Bernanke Vows Independence

Ben S. Bernanke, President Bush’s nominee to succeed Alan Greenspan as chairman of the Federal Reserve, pledged Tuesday to maintain the Fed’s “independent and nonpartisan status” despite his current job as one of Bush’s chief economic advisors.

“I will be strictly independent of all political influences and will be guided solely by the Federal Reserve’s mandate from Congress and by the public interest,” said Bernanke, chairman of the White House Council of Economic Advisors.

Bernanke also promised to follow the course set by Greenspan, who in his 18 years as Fed chairman has become the image of economic stability to most Americans. “I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority,” Bernanke said.

Bernanke’s welcome from the Senate Banking Committee left little doubt that he would be confirmed to replace Greenspan as of Feb. 1, when the term of the current Fed chairman expires. Even Democrats praised him. “The president, in my view, has made a superb decision in nominating you,” Sen. Christopher J. Dodd (D-Conn.) told Bernanke.

The Fed is responsible for managing the nation’s money supply and for setting a short-term interest rate that has a broad effect on other interest rates and the general economy.

Bernanke, 51, was an economist at Stanford and Princeton universities for more than two decades before serving three years on the Federal Reserve Board and six months as chairman of the Council of Economic Advisors. On Tuesday, he calmly addressed most concerns of Banking Committee members even before they raised them.

Another Democratic committee member, Thomas R. Carper of Delaware, found Bernanke’s manner as reassuring as Greenspan’s. “Given your experience and your education, your intellect and, frankly, your demeanor, I think they all combine to prepare you well for the challenges that lie ahead,” he said.

Bernanke said he would continue the trend under Greenspan of better explaining the Fed’s closed-door deliberations over monetary policy to the public. The Fed, which did not announce its interest rate decisions until 1994, now announces and explains them, and Greenspan himself frequently speaks publicly about the economy. But he often speaks in such opaque language that a cottage industry of economists has developed to interpret what he says.

If Bernanke’s testimony Tuesday was any indication, his language may prove to be clearer than Greenspan’s. “I try to speak clearly at all times,” he said.

Not only does the Fed need to keep the economy on an even keel, he said, but it needs to satisfy the public -- particularly the investing public -- that it has a steady hand on the till. That, he said, requires public awareness of what the Fed is up to.

He recalled an episode of severe bond market jitters when he was a Fed board member in 2003 that was due to misperceptions of the Fed’s concern over deflation. “It impressed on me the importance of speaking clearly and communicating clearly and making sure that there’s understanding on both sides about what the Fed is saying and what the Fed is intending to do,” Bernanke said.

But he said he would draw the line at televising Fed meetings on grounds “that it would inhibit discussion, that it would affect the decision process, that it would create volatility in financial markets.”

Bernanke has called on the Fed to use “inflation targeting,” in which it would aim to keep inflation within an explicit range, assumed to be 1% to 2%. On Tuesday, he reaffirmed that view. But he was careful to say the law gave the Fed a “double mandate” not only to control inflation but to do so while achieving “maximum employment.”

In fact, he said, low inflation and low unemployment go hand in hand.

“By maintaining inflation at a low and stable level, avoiding a situation where inflation gets out of control, as it did, for example, in the 1970s, you can create more stable, more solid, more substantial growth in employment,” Bernanke said.