Bernanke is Fed chief, Greenspan exits with another interest rate hike

Bernanke is Fed chief, Greenspan exits with another interest rate hike

	Published : Thu, 02 Feb 2006 02:05 By : Paula Demarzio Print this Story

WASHINGTON: Two significant events happened Tuesday in the finance realm of the United States. White House adviser Ben Bernanke became chairman of the Federal Reserve after he won Senate approval, and outgoing chief Alan Greenspan as a parting kick increased the interest rates -- a 14th straight time.

As the country's lawmakers selected Bernanke by a voice vote, the Fed policy makers hiked short-term interest rates a quarter percentage point to 4.5 per cent with Greenspan, presiding his 149th and final policy meeting after spending 181/2 years as the head of the Fed.

The rate hike immediately led treasury bond prices going down on the prospect the Fed has not fully finished a rate-rise cycle that began in mid-2004. The rates, however, recovered later. Similarly, the dollar too shook off early declines though stocks closed lower.

Bernanke will assume the position for a renewable four-year term, along with a 14-year term on the board. The 52-year-old monetary economist and an ardent advocate of inflation control, is expected to create more formal policy rules than those adopted by Greenspan, according to analysts. However, they do not expect major policy shifts.

Bernanke was a Fed governor before he moved to the White House to head the council of economic advisers. This assignment, his colleagues feel, had given him a deep insight into economic policy planning and helped him cultivate intimate relationship with his colleagues, including Fed vice chairman Roger Ferguson and governor Donald Kohn.

Unlike his predecessor, who had no hesitation to be drawn into debates unrelated to the Fed, Bernanke has made it clear he will not discuss legislative moves that do not directly affect monetary policy. One policy that he may wish to continue, according to analysts, relate to the Fed's approach to surges in prices of assets like stocks and homes. Bernanke believes monetary policy is too blunt a tool to safely use on asset bubbles.

Greenspan, 79, has been at the helm of the central bank since August 1987 -- the second-longest tenure in its history. He has been an advocate of increasing the retirement age of Americans and true to his belief, he intends to keep working, as a consultant, plans writing a book and join the lucrative speaking circuit, commanding fees of up to $150,000 per appearance.

His exit was marked by a standing ovation from colleagues and earlier a low-key staff reception.

Greenspan has been largely responsible for keeping the country's inflation totally under check, and this makes Bernanke's task easier to that extent.

There are hints in the wordings of the statement announcing the interest rate rise. Policy makers altered the statement to say more rate rises "may" be necessary instead of the earlier phrase of "likely". Apparently, this is intended to give Bernanke a free hand in evolving future policy.

Bernanke is set to deliver the Fed's semi-annual monetary policy report to the House Financial Services Committee on 15 February, his first major public appearance as the Fed chief.