U.S. President George W. Bush today named economist Ben Bernanke to succeed Alan Greenspan as chairman of the U.S. Federal Reserve.

The appointment remains subject to confirmation from the U.S. Senate.

Bernanke joined the Federal Reserve Board in 2002 from Princeton University.

He was a governor at the Fed until taking up his post as chairman of President Bush’s Council of Economic Advisers.

If confirmed by the Senate, Bernanke would likely be sworn in so that he could take office on Feb. 1, 2006, the day after Greenspan’s term expires.

Greenspan has held the chairman’s post at the Fed since he was appointed by Ronald Reagan.


In a release, Greenspan said “The President has made a distinguished appointment in Ben Bernanke. Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as Chairman of the Federal Reserve Board.”

The announcement Bernanke will become the next Fed chairman is generally being met with acclaim. No immediate change in direction for U.S. monetary policy is expected.

TD Bank says that the appointment is neutral for financial markets, as Bernanke holds similar views to Greenspan. “Since Bernanke served as a Fed governor for nearly three years, financial markets are already well acquainted with his policy views, which probably accounts for the relatively muted market reaction following the appointment announcement,” TD explained.

It notes that Bernanke mirrors Greenspan in a number of ways, “particularly in the belief of free and open trade with countries and the importance of open Fed communication with financial markets. Both men also apply a ‘risk management’ approach to monetary policy in their willingness to act preemptively in lowering or raising interest rates.”

Where the two differ, TD suggests, is that Bernanke has been a proponent of enhancing central bank transparency by establishing an explicit target for inflation – a policy that has been adopted by a number of other central banks, such as the Bank of Canada and the ECB. “However, we doubt this issue will be on the Fed agenda any time soon,” it notes.

Notwithstanding the calm market reaction, TD suggests the challenges ahead for Bernanke are great. “The former Fed governor will be inheriting the chairman reins during a period when economic imbalances have become the norm rather than the exception, including outsized current account and fiscal deficits, defiantly low Treasury yields and a hot, and some would say over-heated, housing market.”

“In respect to the housing market, Bernanke is largely of the view that fundamentals are the main driver of the recent rapid appreciation in home prices, which is perhaps a slightly more tempered view of the risks than Greenspan has proposed. On the issue of the ongoing drag from the current account deficit, Bernanke has been a proponent of the ‘global savings glut’ story, which essentially argues that underinvestment in other countries (often emerging or oil producing) has resulted in high global savings, which have found a home in U.S. financial markets,” it notes.

“Neither of these views leads us to believe there will be a deviation from the current Fed tightening path,” TD concludes. “And, given that the risks to inflation are increasingly stacked to the upside, Bernanke will need to establish himself as a credible inflation fighter in order to anchor market expectations. Overall, the appointment of Bernanke does not alter our view that the Fed will continue to raise rates to a more neutral setting of 4.50% by early next year.”

The Bank of Canada issued a statement welcoming the nomination. “The Bank of Canada has worked closely with Dr. Bernanke in his capacity as a professor at Princeton University and as a member of the Federal Reserve Board,” it notes.

Marc Lackritz, president of the Securities Industry Association, also hailed the decision. “Ben Bernanke’s experience, intellect and temperament make him an excellent choice to lead the Fed and help steer the nation’s economy,” said Lackritz. “His previous service on the Fed’s board of governors under Greenspan has provided him invaluable preparation for this critical role and his steady hand and solid judgment should serve our financial markets well. We look forward to working with him.”