Bernanke quietly guides economy
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conference last summer, the world's most powerful central banker sat
quietly by himself in the expansive stone lobby of Wyoming's Jackson
Lake Lodge, tapping away on a laptop computer as vacationers strolled
by, unawares.
Fed Chairman Ben Bernanke's relative anonymity was a major departure
from the days of his predecessor, Alan Greenspan, when people would
spy the Fed meeting sign and hang around the conference room with
cameras cocked for a photo of the financial superstar.
As he finishes his first year as chairman, the unassuming Bernanke,
53, doesn't have Greenspan's head-turning sway over the general
public, at least not yet, but he does have firm control of the central
bank and the growing confidence of financial markets.
The former Princeton professor, Fed governor and White House adviser
has steered the central bank through a turning point in an economy
that was confronting a tumbling housing market and uncomfortably high
inflation. The Fed, which meets here today and Wednesday to review
interest rate policy, has held the target for short-term interest
rates steady since June after two years of raising it to combat
inflation. Economic growth slowed in the second half of 2006, but the
job market strengthened.
"I congratulate you and the Fed in keeping interest rates where the
American people can stand and the economy can prosper," Jim Bunning, R-
Ky., the sole senator to oppose Bernanke's nomination, told him this
month.
Working with other regulators, the Bernanke Fed has also tightened
guidelines for commercial real estate and mortgage lending and
toughened standards for complex financial products misused by energy
giant Enron.
The new year brings new challenges, including a Democrat-controlled
Congress that could be less deferential to a Fed chairman and board of
governors appointed entirely by President Bush. (It's the first time
since Ronald Reagan that one president has had such sway over the
makeup of the central bank.)
Greenspan's 2001 decision to endorse the Bush administration's tax
cuts also frayed relations between the Fed and many Democrats, who
blame current deficits partly on Bush's tax policy.
"He faces a significant challenge of restoring credibility," says
Senate Budget Committee Chair Kent Conrad, D-N.D. "He's reached out."
Bernanke, who has made overtures to a number of Democrats, recently
invited Conrad for lunch in his private dining room. The Fed chief
testified before Conrad's committee this month, warning of a long-term
budgetary "crisis." In a break from Greenspan, Bernanke declined to
endorse precise tax or spending solutions, calling those political
decisions for Congress.
"I enjoy him very much ... he's not a backslapper, he's a thoughtful,
serious man," Conrad says. "He's wise not to sink into the bog of
specific policy recommendations. I don't think that's the job of the
Federal Reserve chairman."
Guiding the economy
The Fed chairman's job is to guide the economy. Business leaders and
economists have become more confident about Bernanke's approach, and
the outlook for the economy, in recent weeks.
But it's early to declare that the Fed has achieved an economic "soft
landing," in which growth slows enough that inflation fades, but the
economy doesn't falter. The housing market remains in the doldrums,
and Fed officials warn that inflation is too high.
Nearly all the 56 top economists surveyed by USA TODAY Jan. 18-24
expect the USA to avoid a recession. But they are split on whether
slower growth or higher inflation poses a bigger threat ahead.
Bernanke's first year (he moved in on Feb. 1) took him from Europe to
China and 11 of the 12 regional Fed banks. He settled into overseeing
a staff of 2,000, parrying hours of congressional questioning and
making a number of trips to New York for speeches and private meetings
with financial leaders.
Bernanke's policy approach is evolving, though there are stylistic
differences from Greenspan, who with his wife, NBC News chief foreign
affairs correspondent Andrea Mitchell, remains prominent on the
Washington social scene. Bernanke sightings at glitzy gatherings are
limited: He's more likely to be with his wife, Anna, a teacher, at a
play or in the stands at Washington Nationals baseball games.
That's not to say Bernanke isn't social. Even as chairman, he can be
spotted eating lunch in the Fed cafeteria, plopping down at tables to
talk with staff. He plays basketball in the Fed gym. He is a more
natural mingler than Greenspan.
Mark Pinsky, president of the Opportunity Finance Network, which
encourages development in low-income areas, was appointed to the Fed's
consumer advisory committee in 2002. Pinsky was a bit awestruck at his
first Fed meeting, including a reception where everyone nervously
awaited Greenspan.
"I look over, and there at this table is this guy who's just sitting
there. He's calm and very friendly. ... He looked like he could have
been a senior economist," Pinsky recalls. "I said, 'Hi, I'm Mark,' and
he said, 'Hi, I'm Ben.' "
After a quarter-hour of small talk Pinsky discovered who Bernanke was,
but only because a staffer came looking for the then-Fed governor.
In November, Chairman Bernanke spoke at a conference on community
development Pinsky organized, a notable event because he averages just
about two public speeches a month.
Bernanke is less formal, but hardly laid-back, in private meetings.
"It was more Mr. Greenspan's style to sit and listen and then ask
questions at the end. ... It's more Mr. Bernanke's to carry on, in an
almost conversational manner, give-and-take through the entire
meeting," says Jerry Howard, executive vice president of the National
Association of Home Builders, which warned against Fed rate increases.
"He clearly has certain things he wants to find out, and if it's not
contained in the discussion as it's flowing, he brings it back,"
Howard says.
The American Bankers Association is another group that has differed
with Fed policy, including the clampdown on real estate lending.
"When you meet with Bernanke, he is almost disarmingly frank. He gets
to the point right away, and he gets the point you're making," says
Wayne Abernathy, ABA executive director for financial institutions.
Abernathy calls Bernanke "almost judicial" in decision making,
listening to a broad range of opinions and resisting snap judgments.
More open debate
Internal Fed debates over interest rate policy have likewise become
more open under Bernanke, though there was back-and-forth under
Greenspan.
Richmond Fed President Jeffrey Lacker says Bernanke "encouraged open
discussion, encouraged us to question and challenge each other's
position" when he began running the Federal Open Market Committee,
made up of Fed governors and regional bank presidents.
One example: When the FOMC discusses interest rate policy, Bernanke
speaks last, unlike Greenspan, who went first, laying out where the
central bank should go.
Bernanke's speeches and testimony are more direct than those of
Greenspan, a master of deliberately tangled prose. After a few early
missteps, Bernanke is becoming a more confident speaker.
Bernanke, like Greenspan, favors greater regulation of mortgage giants
Fannie Mae and Freddie Mac. He's stayed the course in such areas as
international banking rules or oversight of hedge funds. The new
chairman has devoted a fair amount of time to consumer issues and
community development in public speeches and plans an address on
rising income inequality - a major issue for the Democrats.
Scott Anderson, chief economist at Wells Fargo Bank, says Bernanke
puts more emphasis on economic models and less on individual data
points in setting interest rate policy. Still, Pinsky and others who
have met with Bernanke say he is deeply immersed in data, though he
may not use some of the more esoteric statistics Greenspan used to dig
up.
Where there are differences from the Greenspan Fed, such as Bernanke's
endorsement of inflation targeting - setting a specific range for
allowable inflation - he is moving slowly to build consensus.
Early worries in the markets that Bernanke would be A) too tough or B)
too soft on inflation have receded, as the Fed's decision to hold the
target for short-term rates at 5.25% seems to be working to slow
inflation without unduly harming the economy.
If anything, Fed officials in recent speeches say, the markets aren't
concerned enough about inflation.
Policy and politics
Though Bernanke has drawn a tighter line between economics and
politics, it's too loose for some.
Kenneth Thomas, a professor at the University of Pennsylvania's
Wharton School, says records of Bernanke's meetings with White House
and other political officials in his first four months in office show
he was basically non-political.
But saying that a main duty of the chairman is guarding the
independence of the Fed, Thomas faults Bernanke for visiting China in
December with a delegation led by Treasury Secretary Henry Paulson on
currency and trade issues.
"For him to ... spend all that time traveling around the world with the
administration and Cabinet when he used to work at the White House is
totally inappropriate," Thomas says.
Bernanke did travel to China on a separate, commercial flight.
Wake Forest professor John Wood, a central bank historian, says big
changes in Fed policy usually result from political pressures. Since
the late 1970s when then-chairman Paul Volcker tackled inflation, the
Fed has had a consistent emphasis on stable prices. But large budget
deficits, the escalating cost of the Iraq war and other fiscal issues
could cause economic problems and prompt political calls for the Fed
to once again allow higher inflation or take other steps to ease the
fallout.
Bernanke has made it clear that the Fed is independent and committed
to low inflation. In the past year, he's shown personal and policy
skills, and signs that he has an ability to connect with the public
that could come in handy.
Staying grounded
Bernanke's efforts to build bridges with Democrats are helped by the
fact that House Budget Committee Chairman John Spratt represents his
tiny hometown of Dillon, S.C.
Bernanke returned to Dillon last summer, after receiving the "Order of
the Palmetto," the highest civilian honor bestowed by the state,
recognizing lifetime achievement and service. In remarks, Bernanke
described growing up, helping in his family's drugstore, waiting
tables at the kitschy tourist attraction South of the Border and
working construction.
"Now I am an economic policymaker, and I sit in a nice office in
Washington looking at reports and tables of data and following the
fluctuations of the financial markets," Bernanke said.
"I try not to forget what underlies all those data: millions of
Americans working hard, trying to better themselves economically,
struggling to manage their family finances and worrying about the
price of gas and college tuition."
Contributing: Barbara Hagenbaugh