Fed nominee called hard-numbers man


WASHINGTON -- Federal Reserve Chairman Alan Greenspan used personal intuition and wide flexibility to set U.S. interest rates over the past 18 years. And Ben Bernanke, the man chosen to replace him, vowed at his confirmation hearings yesterday to continue Greenspan's policies if he takes over as expected in January.

Economists said the differences between the two men will become apparent and will make monetary policy more mechanical than it has been under the 79-year-old Greenspan, who achieved star status as a leading U.S. and world economic figure.

The would-be new face of the Fed is a former member of the central bank who also served briefly as President Bush's chief economic adviser. Bernanke is an academic who trusts hard numbers more than personal perception.

And his style could give the public a more predictable, transparent monetary policy than that under Greenspan. At his hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Bernanke spoke more quickly and more directly than Greenspan did at such events, and with an apparent mastery of the economy and financial markets.

Bernanke offered a reassuring look at the U.S. economy, saying economic growth looks strong, inflation appears to be in check, and the once red-hot housing market is "stabilizing." He said foreign holders of U.S. dollars, such as China and Japan, are unlikely to dump them and trigger a dollar crisis, as many have feared.

Carl Tannenbaum, chief economist at LaSalle National Bank in Chicago, said that in contrast to Greenspan, Bernanke prefers to use blunt, clear language rather than cryptic phrase-making, such as when Greenspan referred to the late 1990s stock market boom as "irrational exuberance."

Bernanke is an exponent of clearer communication on the Fed's objectives and of removing some of the mystery behind policymaking, but he said in his testimony that he would not permit televised meetings of Fed meetings because that would inhibit discussion.

Bernanke also made it clear that he would not comment on specific proposals for tax cuts or spending reductions, as Greenspan often did, and would try to keep any hint of politics out of his public comments.

The longer Greenspan was in the office, the freer he felt to question the government's fiscal policies. He also drew criticism for supporting President Bush's tax cuts.

As Bernanke made clear yesterday, he is an advocate of using a specific target for inflation to guide the central bank in setting interest rates. Although this is a highly complex process, involving many measurements for inflation and many time frames, he has spoken in favor of using hard price-level numbers to help the central bank make decisions.

For example, the Fed might decide to set a target for the annual rate of inflation at 2 percent. Inflation appearing to be rising above that mark for an extended period would trigger higher interest rates, and cuts in the cost of borrowing would be made if inflation fell below that standard.

Bernanke said he would not move to an inflation target until further study, but he made it clear that he likes the idea and that other central banks have adopted that approach. By keeping prices stable, he said, economic growth will be enhanced and more jobs created.

He said such a step would enable the Federal Reserve "to satisfy its dual mandate of achieving both stable prices and maximum employment."

Maryland Sen. Paul S. Sarbanes, the committee's top Democrat, argued that the failure in Europe of a policy similar to the inflation-targeting that Bernanke favors raises questions about whether it should be used in this country.

"If inflation-targeting has worked so poorly in Europe compared to our performance, why should we go down that path here?" Sarbanes asked.

Bernanke replied that the European system has different goals and different policies for keeping inflation steady. He called his idea "a modest bit of additional transparency," rather than a major policy change from the Greenspan era.

Sarbanes also asked Bernanke for a commitment to help lower the costs for foreign workers who send money back to their home countries by making it easier for them to use U.S. banks. The "remittances" account for tens of billions of dollars sent abroad each year, much of which now ends up in the hands of middlemen.

"It's very important, obviously, for the immigrants themselves and for the countries that are receiving the remittances," Bernanke told Sarbanes. "And I'll continue to be interested in that."

In contrast, Greenspan watched inflation numbers closely in making interest-rate decisions but shied from holding the central bank to a specific target, former Federal Reserve member Lyle Gramley said. "Greenspan's an oracle," Gramley said. Greenspan prided himself on being able to see economic shifts before others could see them, and preferred to keep his options open.

"Greenspan did a great job with being flexible," said David Wyss, chief economist at Standard and Poor's, a credit-rating company. "The problem with flexibility is that it assumes the person doing the managing is really good at doing it."

William Neikirk writes for the Chicago Tribune. Sun reporter Gwyneth K. Shaw contributed to this article.

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