Washington -- President Bush named Ben Bernanke, head of his Council of Economic Advisers, yesterday to succeed Alan Greenspan as chairman of the Federal Reserve.
If confirmed, Bernanke, 51, a former Fed member, will have big economic challenges ahead - perhaps even bigger than those Greenspan has encountered.
Greenspan, 79, who earned credibility and star-like status in handling stock market crashes, international financial crises, inflation, and booms and busts in more than 18 years as the Fed's chairman, is retiring in January.
In naming Bernanke, Bush essentially kept the central bank on the same course it has followed under Greenspan, whom the president called a "legend" yesterday.
Though Bernanke might not be widely recognized, he is a well-known figure in financial markets because of his experience at the central bank.
It won't take long for Bernanke to become a household name. Modern communications, including the Internet and cable TV, have enhanced the chairman's role in society. Every utterance is evaluated, dissected and scoured for its meaning.
When Greenspan complained of "irrational exuberance" in a hot stock market, for example, he signaled that the run-up had gone too far. In doing so, he coined a term that defined an era.
Many analysts said Bernanke has the essential tools to achieve a similar status as the man he's replacing, but they acknowledged that the nominee's challenges appear imposing.
"It is a much more difficult job," said Lawrence Kotlifkoff, economics professor at Boston University. He cited the country's large trade deficit, the budget deficit and growing Social Security costs. "We have enormous fiscal problems. We could have a financial meltdown, given our fiscal situation."
Another key issue is how much longer the Fed will raise interest rates, and whether it will be finished with its increases by the time Greenspan leaves next year. If inflation pressures persist, Bernanke might be faced with having to raise interest rates even higher as soon as he takes the job.
At the beginning, a Bernanke reign is expected to bear a close resemblance to the policies pursued by Greenspan, although time might bring about differences in style and substance.
"Ben Bernanke is the right man to build on the record Alan Greenspan has established," Bush said in announcing the nomination. In many respects, both men share the same objective of attacking inflation aggressively, and they both have strong faith in free and open markets.
Strong academically, Bernanke ran the economics department at Princeton University, graduated with honors from Harvard University and has a doctorate from the Massachusetts Institute of Technology. As a Fed member, he quickly developed a close relationship with Greenspan, and some described him as the chairman's alter ego.
He articulated the central bank's decisions to slash interest rates to avoid a devastating 1930s-style deflation and also its moves to raise interest rates gradually after the economy began to recover.
Bernanke appeared to be a popular choice on Wall Street. The markets rallied after Bush's announcement, and the Dow Jones industrial average closed up nearly 170 points.
"This is the equivalent of a John Roberts nomination," said Michael Davis, professor of finance and economics in the business school at Southern Methodist University, referring to Bush's recently confirmed chief justice.
Democrats reacted cautiously to the announcement. Senate Minority Leader Harry Reid of Nevada said he looked forward to the hearings on the nomination.
"It will be important that Mr. Bernanke demonstrate that he is committed to guiding the economy to produce results for all Americans rather than promoting partisan policies that benefit special interests and an elite few," Reid said.
Senate Majority Leader Bill Frist of Tennessee called Bernanke a "gifted economist with the experience and skills necessary to guide the Federal Reserve."
Managing financial and economic crises is a key responsibility of the Fed chief, and few could compare with Greenspan in that respect.
"Greenspan was very good at assuring people in a crisis," said Barry Bosworth, an economist at the Brookings Institution, who called Bernanke a good choice. "Greenspan had the type of personality that could make it sound as if the Fed was prepared to deal with a crisis, and then did."
Bill Cheney, an economist at John Hancock Financial Services in Boston, said that when Greenspan took the post, "he had to prove himself immediately," and he predicted that Bernanke would do the same.
Yet Greenspan is often blamed for being slow to lower interest rates during the 1990-1991 recession and for keeping the cost of borrowing money low in the late 1990s when an economic "bubble" emerged.
Greenspan's longevity is a factor in the status he has achieved. He has been head of the central bank since Aug. 11, 1987. When he retires, his tenure will be second only to William McChesney Martin, who served 18 years, 9 months as Fed chairman.