FEDERAL RESERVE Chairman Ben S. Bernanke's testimony on Capitol Hill this week was so clear and succinct -- and bullish -- that investors may soon forget about his predecessor, Alan Greenspan. Bernanke's message that the economy is enjoying healthy growth, low unemployment and little inflation soothed financial markets, but it was his forthright, substantive answers that awed members of the Senate and House committees that oversee the nation's central bank.
Indeed, Bernanke, who's been on the job just over a year, performed better than he should have, politely answering too many questions.
The independence of the central bank that oversees the nation's financial system and monetary policy -- regulating the supply of money in the economy and interest rates -- instills a great deal of confidence in the dollar and in the nation's financial sector. Such independence may seem an abstraction, but it should be a tangible reality to legislators charged with overseeing the bank's work. If they don't get it, who will?
So it was discouraging watching these senators (on Wednesday) and House members (on Thursday) expending so much hot air trying to get the patient Bernanke to agree to any number of their legislative priorities or pet theories.
He endorsed certain approaches to affordable housing development, "good policies" (as opposed to bad policies?) to deal with the nation's aging population, the building of liquefied natural gas terminals, reducing government guarantees for anti-terrorism insurance, moves to force more transparency in CEO compensation packages, health insurance portability, more preschool programs and fewer "Law & Order" spinoffs.
OK, he didn't get into TV programming. But he could have. The point is that the chairman of the Federal Reserve should refuse to wade into any policy debates that exceed his reach. Although Bernanke did say President Bush's tax cuts have been a net positive for the economy, he resisted repeated entreaties from members of both parties to take sides on upcoming battles over tax policy. This is what tarnished Greenspan's independence. In one amusing aside on Wednesday, Sen. John E. Sununu (R-N.H.) tried to make a case for why it's appropriate to have the Fed chairman talk about education (something about it being an "input") but not tax policy.
Bernanke probably felt that he was weighing in on what he considered noncontroversial (if also nonrelevant) issues, but he'd be wise to stick to macroeconomic conditions and monetary policy. The Fed's credibility will be enhanced every time he says, "That's none of my business."