Economy 16 Feb 2007 07:36 am
Fed Chairman Ben Bernanke is starting to get the same love as Alan Greenspan. When he talks like he did before the House of Representatives that inflation wasn’t a threat to the economy stocks soared to an all-time high.
Congress is also giving the Fed Chairman some of that love which may play into his goal of pushing the central bank toward inflation targeting:
Several common themes have emerged from the hearings. First, Mr Bernanke’s decision to halt rate rises in the summer of 2006 has earned him political capital as a Fed chairman who considers seriously the dual mandate to put equal weight on employment and inflation, and not inflict harm lightly on the real economy.
Mr Bunning, who opposed Mr Bernanke’s confirmation, said: “The Federal Open Market Committee did the right thing by stopping the increases in the Fed funds rates after the June 2006 Fed meeting. By holding rates constant, you have done the right thing ever since.”
Second, his modest, plain-speaking manner, which stands in sharp contrast to that of Alan Greenspan, the previous chairman, is going down well with Congress.
Melvin Watt, a Democratic congressman, said: “I happened to like your predecessor. Problem was I didn’t understand a damned thing he ever said – so you are a breath of fresh air.”
Third, Mr Bernanke is showing a surprising degree of political savvy, positioning himself shrewdly in the debates of the moment, which hinge on inequality and middle-class economic anxiety, and moving to meet a desire for greater public accountability at the Fed.
All this could help Mr Bernanke change the way the Fed operates, above all the adoption of a flexible inflation target with a specified inflation goal but one that would not be achieved over a fixed timeframe. Conventional wisdom has it that the Democratic victory last November and the broader mood of economic populism in the air make this an uphill struggle.