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29thJanuary2006, 18:40
Bernanke to take over Fed with uncertain road ahead
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Sunday, January 29, 2006 11:04 a.m. ET
By Tim Ahmann
WASHINGTON (Reuters) - White House economic adviser Ben Bernanke will almost certainly win Senate approval on Tuesday to become the 14th chairman of the U.S. Federal Reserve. Beyond that, the road gets hazy.
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Mr. Greenspan (http://wireservice.wired.com/wired/search.asp?q=Greenspan)
Mr. Bernanke (http://wireservice.wired.com/wired/search.asp?q=Bernanke)
Alan Greenspan (http://wireservice.wired.com/wired/search.asp?q=Alan+Greenspan)
Bernanke, head of the White House Council of Economic Advisers, will take control of the U.S. central bank in a period of crucial choices for monetary policy and heightened economic uncertainty.
http://ad.doubleclick.net/ad/N1942.wired.com/B1633585.5;sz=300x250;ord=2128383106? (http://www.vivamalta.org/forum/)
That uncertainty grew on Friday with a government report that showed U.S. economic growth slowed sharply to a 1.1 percent annual rate in the fourth quarter of last year, the slimmest gain in three years.
Under the experienced hand of Alan Greenspan, who has served as Fed chief since August 1987, the central bank has lifted benchmark overnight interest rates to 4.25 percent in 13 quarter-point steps since June 2004 to head off inflation.
Fed officials meet again on Tuesday, Greenspan's last day in office, and a 14th small rate hike appears assured.
Some economists said the slower growth at the end of last year will ensure Tuesday's increase will be the last in the series. Others, however, think the economy will bounce back sharply in the current quarter and call for further action.
When the Fed started its credit-tightening campaign 19 months ago, the overnight rate stood at a 1958 low of 1 percent. With rates now at a more-normal level, Bernanke will face the delicate task of deciding when enough is enough.
"A year and a half ago it was pretty obvious how to forecast the path of the funds rate," said long-time Bernanke associate Mark Gertler, chairman of the economics department at New York University. "Now, I think what happens is really going to depend on the new data that comes in."
YES, MR. SENATOR
The outlook many forecasters and Fed officials offer is bright, with economic growth slowing just enough to keep inflation pressures at bay.
But plenty of economists are less optimistic.
Some think a bursting bubble in the U.S. housing market will brake the economy sharply and lead the Fed to cut rates by the end of the year. Others think the expansion has a head of momentum that only higher borrowing costs can cool.
"The first challenge he has to face ... is where is this economy going right now," said Martin Baily of the Institute for International Economics. Baily said unfortunately the risks to growth appear on the downside, while inflation risks might be tilted up.
So far Fed officials have had an important ally in their efforts to keep inflation contained -- the big strides U.S. businesses have made toward greater efficiency.
"As long as productivity growth maintains its recent pattern, then I think he'll be in a nice position to maintain price stability and robust growth," Gertler said.
Bernanke will get a chance to offer his views on where the economy is heading shortly after he takes office. He goes before a House panel on February 15 to deliver the central bank's semi-annual monetary report.
The hearing may present yet another challenge.
"When Mr. Greenspan leaves and Mr. Bernanke arrives in February, there are going to be a heck of a lot of congressmen arguing that it's time for the Fed to stop raising interest rates," said Kevin Hassett, a scholar at the conservative American Enterprise Institute, at a recent forum.
"We're going to see a show unlike any we've ever seen for two decades," he said, arguing Bernanke lacked the "body armor" of credibility Greenspan had earned over the years.
Bernanke will also be facing what some economists see as economically destabilizing imbalances.
In addition to a potential bubble in the housing market, some economists believe burgeoning U.S. budget and trade deficits have led to a dangerous reliance on foreign capital.
These analysts warn that a loss of appetite for dollar assets among overseas investors could lead to a spike in long-term U.S. interest rates and a collapsing currency.
"If we started to get crises ... the question would be, 'Is Bernanke able to handle it?'," Baily said.
Baily said Bernanke had the knowledge to handle a crisis, but lacked one important asset Greenspan -- who faced the 1987 stock market crash just months after taking on his new job -- had earned over time: The confidence of financial markets.
"He may do all the right things, but things might still go badly."
Copyright (http://www.wired.com/news/reuters.html) © 2006 Reuters Limited. This story and its comments expire 30 days after original publication date.
Guess what the full name is: Ben Shalom Bernanke. Surprise surprise!
http://c.lygo.com/s.gif
http://c.lygo.com/s.gif
Sunday, January 29, 2006 11:04 a.m. ET
By Tim Ahmann
WASHINGTON (Reuters) - White House economic adviser Ben Bernanke will almost certainly win Senate approval on Tuesday to become the 14th chairman of the U.S. Federal Reserve. Beyond that, the road gets hazy.
http://ly.lygo.com/ly/wired/shared/images/cs1/icon13sec_nw.gif More Stories About...
Mr. Greenspan (http://wireservice.wired.com/wired/search.asp?q=Greenspan)
Mr. Bernanke (http://wireservice.wired.com/wired/search.asp?q=Bernanke)
Alan Greenspan (http://wireservice.wired.com/wired/search.asp?q=Alan+Greenspan)
Bernanke, head of the White House Council of Economic Advisers, will take control of the U.S. central bank in a period of crucial choices for monetary policy and heightened economic uncertainty.
http://ad.doubleclick.net/ad/N1942.wired.com/B1633585.5;sz=300x250;ord=2128383106? (http://www.vivamalta.org/forum/)
That uncertainty grew on Friday with a government report that showed U.S. economic growth slowed sharply to a 1.1 percent annual rate in the fourth quarter of last year, the slimmest gain in three years.
Under the experienced hand of Alan Greenspan, who has served as Fed chief since August 1987, the central bank has lifted benchmark overnight interest rates to 4.25 percent in 13 quarter-point steps since June 2004 to head off inflation.
Fed officials meet again on Tuesday, Greenspan's last day in office, and a 14th small rate hike appears assured.
Some economists said the slower growth at the end of last year will ensure Tuesday's increase will be the last in the series. Others, however, think the economy will bounce back sharply in the current quarter and call for further action.
When the Fed started its credit-tightening campaign 19 months ago, the overnight rate stood at a 1958 low of 1 percent. With rates now at a more-normal level, Bernanke will face the delicate task of deciding when enough is enough.
"A year and a half ago it was pretty obvious how to forecast the path of the funds rate," said long-time Bernanke associate Mark Gertler, chairman of the economics department at New York University. "Now, I think what happens is really going to depend on the new data that comes in."
YES, MR. SENATOR
The outlook many forecasters and Fed officials offer is bright, with economic growth slowing just enough to keep inflation pressures at bay.
But plenty of economists are less optimistic.
Some think a bursting bubble in the U.S. housing market will brake the economy sharply and lead the Fed to cut rates by the end of the year. Others think the expansion has a head of momentum that only higher borrowing costs can cool.
"The first challenge he has to face ... is where is this economy going right now," said Martin Baily of the Institute for International Economics. Baily said unfortunately the risks to growth appear on the downside, while inflation risks might be tilted up.
So far Fed officials have had an important ally in their efforts to keep inflation contained -- the big strides U.S. businesses have made toward greater efficiency.
"As long as productivity growth maintains its recent pattern, then I think he'll be in a nice position to maintain price stability and robust growth," Gertler said.
Bernanke will get a chance to offer his views on where the economy is heading shortly after he takes office. He goes before a House panel on February 15 to deliver the central bank's semi-annual monetary report.
The hearing may present yet another challenge.
"When Mr. Greenspan leaves and Mr. Bernanke arrives in February, there are going to be a heck of a lot of congressmen arguing that it's time for the Fed to stop raising interest rates," said Kevin Hassett, a scholar at the conservative American Enterprise Institute, at a recent forum.
"We're going to see a show unlike any we've ever seen for two decades," he said, arguing Bernanke lacked the "body armor" of credibility Greenspan had earned over the years.
Bernanke will also be facing what some economists see as economically destabilizing imbalances.
In addition to a potential bubble in the housing market, some economists believe burgeoning U.S. budget and trade deficits have led to a dangerous reliance on foreign capital.
These analysts warn that a loss of appetite for dollar assets among overseas investors could lead to a spike in long-term U.S. interest rates and a collapsing currency.
"If we started to get crises ... the question would be, 'Is Bernanke able to handle it?'," Baily said.
Baily said Bernanke had the knowledge to handle a crisis, but lacked one important asset Greenspan -- who faced the 1987 stock market crash just months after taking on his new job -- had earned over time: The confidence of financial markets.
"He may do all the right things, but things might still go badly."
Copyright (http://www.wired.com/news/reuters.html) © 2006 Reuters Limited. This story and its comments expire 30 days after original publication date.
Guess what the full name is: Ben Shalom Bernanke. Surprise surprise!