Chairman Bernanke Goes Up the Hill
Ben Bernanke slipped into the House Financial Service Committee's hearing room from behind the dais. He quietly made the rounds, chatting briefly with several lawmakers. Then he took the central seat at the long witness table, and it was clear: For the first time in 18 years, someone other than Alan Greenspan was going to convey the Federal Reserve's viewpoint on the U.S. and global economies to Congress.
In his first public performance as Fed chairman, Bernanke hit all his marks and achieved modest goals. He didn't say anything that would upset the markets, and he delivered the Fed's message as well as -- or even better than -- Greenspan. Comparison between Bernanke and the long-time maestro of monetary policy are inevitable. But the new Fed chief used the three-hour hearing to start carving out a style of his own (see BW Online, 2/16/06, "Bernanke's Washington Honeymoon").
Bernanke was careful to reassure lawmakers that he would follow Greenspan's winning formula -- a combination of sophisticated economic forecasting with real-world empirical observation. But the new Fed boss strayed from the former chairman's playbook in a few ways and put his own imprint on the current economic landscape in others. The appearance gave a preview of some likely hallmarks of his tenure, including:
• Plain English. The former professor gave short, clear answers to lawmakers' questions. He explained with straightforward syntax why today's relatively low long-term interest rates don't necessarily augur for a recession, while they might have in the past. (While low long-term rates typically have signaled economic pessimism, today those rates are low because investors don't expect much inflation.) It was a refreshing contrast to Greenspan's long, winding explanations, which often left lawmakers perplexed.
• No Tax Talk, Please. Even before his House testimony, Bernanke had vowed to steer clear of issues outside of the Fed's banking-and-interest rate turf. As a Fed member, Bernanke had seen the controversy that often followed Greenspan's musings, especially on tax policy.
The new Fed chief also must establish his independence as a central banker and distance himself from his previous partisan job as chairman of the White House Council of Economic Advisers. So Bernanke repeatedly turned down requests to opine on President Bush's campaign to make his tax cuts permanent -- calling such decisions "Congress' prerogative."
• Pet Topic: Education. But Bernanke slipped on occasion in his vow to stay strictly in Fed Land. He spoke often of the need for an educated, globally-competitive U.S. workforce. And once he stressed his preference for school vouchers, or as he put it, "funding the student, not the school." By "giving individuals the choice of where they want to go, you utilize the market and choice to create competition among schools," he said.
In another slip, Bernanke indicated a distaste for raising the minimum wage. A higher floor might offer a lift for those lucky enough to have minimum-wage jobs, but would be likely to mean fewer people have jobs, Bernanke said. "Minimum wages affects a very small [percentage] of workers," he said.
• Deference. On that and other questions, Bernanke's Democratic inquisitors didn't enjoy hearing his conservative analysis. But they were pleased at his style, as the new Fed chief crafted well-balanced, politic answers. He was always careful to acknowledge the Democrats' concerns. In contrast, Greenspan could adopt a dismissive tone for interlocutors who didn't share his conservative philosophy.
In one of many exchanges on growing income inequality, for example, Bernanke said: "I agree that rising inequality is a concern. The strength of the economy itself requires a belief of the broad American public that they are beneficiaries of a rising economy." But then he ascribed much of the inequality to a "rising skill premium" and the need for workers to gain more education to capture higher wages.
• Keeping an Eye on Oil. While Bernanke acknowledged the risks in America's ballooning trade deficit and the current housing bubble, he reserved his biggest concern for the uncertain outlook for energy prices.
"We're in a difficult period, operating close to the margin of the available supply of oil and gas," he noted. Current high prices might induce conservation and alternative sources of energy in 10 years to 15 years, he said. But "over the next 5 to 10 years, we're in a zone of vulnerability without alternatives and a relatively small margin of error in terms of global supplies."
Overall, how did the new Fed chief play? Financial markets breathed a sigh of relief: The Dow Jones Industrial Average gained 30 points. The new chairman is cautiously carving a separate style -- and eventually may pursue a separate course -- from the old. But for now, he was close enough to keep markets calm.