President George W. Bush announced today that he will nominate his top economic adviser Ben S. Bernanke to succeed Federal Reserve Chairman Alan Greenspan.
Bush chose Bernanke to replace Greenspan, whose 18-year tenure at the Fed runs out on Jan. 31. The announcement came this afternoon.
“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,” Alan Greenspan said in a statement.
Bernanke is chairman of Bush’s Council of Economic Advisers. He served on the Fed’s Board of Governors for nearly three years before moving to the White House in June.
His move to the White House was watched with interest on Wall Street because of the belief that he was on the fast track to replace Greenspan, media accounts said.
Bernanke, a highly regarded monetary economist, has advocated steps toward greater policy transparency at the Fed and is a long-time advocate of inflation targets, accounts said.
At the Fed, he argued the central bank could help cement its inflation-fighting credibility by putting a number on its definition of price stability.
Charged with implementing the nation’s monetary policy, the Federal Reserve head’s actions are felt by everyone in the financial services and real estate industry. In the past, a cryptic blurb of “Greenspan speak” has been known to spark major movement in the bond market and hundreds of news stories analyzing what was meant. The Federal Reserve Board moves the target funds rate, which impacts long-term mortgage rates.
The federal bank rate, which the Fed’s Open Market Committee controls, is not directly tied to long-term interest rates. But it almost inevitably affects them. When the committee substantially lowered the nation’s benchmark interest rate in the early 2000s, many said this helped to fuel the housing boom that continues to this day.
The Fed has raised rates by a quarter percentage point at each of its last 11 meetings. Whether the Fed keeps this slow but sure pace of rate hike to battle inflation or stops its tightening early in the new chairman’s tenure will affect how much money many homeowners have to spend, and how much businesses can expand.
During his 18-year tenure as head of the Federal Reserve, Greenspan helped steer the American economy through the crash of 1987, the recession of the early 1990s, the dot-com bubble and the terrorist attacks of Sept. 11. According to ABC News, in 1998 unemployment reached a 24-year low, inflation hit an 11-year low and consumer confidence was the highest it had been in 30 years thanks in part to Greenspan.
As chairman of the Board of Governors of the Federal Reserve of the United States, Greenspan’s decisions, first, to substantially lower the federal bank rate during the early 2000s, and then, starting last summer, to gradually increase it, made him one of the most influential people in real estate today.
Greenspan, who received a bachelor’s, master’s and Ph.D. in economics from New York University, had only to speak, and the real estate market and other markets responded. (“Today, when Alan Greenspan sneezes, at least half the planet’s financial population catches cold,” Larry Kudlow, National Review Online economics editor, famously said in 2003.)
For example, a substantial rise in mortgage rates this June was attributed to Greenspan by Bankrate.com, Inman News reported. Early in 2005, Greenspan called it a “conundrum” that long-term rates had fallen since last June, even as the Fed had raised short-term rates. He said something similar in congressional testimony in June, when he called the decline in long-term interest rates among “the biggest surprises of the past year” and “without recent precedent.”
Wall Street thought about Greenspan’s comments overnight, and bond yields and mortgage rates rose the next morning, according to Bankrate.com. They kept rising in the following days, even in the face of weaker-than-expected economic data.
Such was the power of Alan Greenspan, who originally took office as chairman of the Fed and to fill an unexpired term as a member of the Board on Aug. 11, 1987. Greenspan was reappointed to the Board to a full 14-year term, which began Feb. 1, 1992, and ends Jan. 31, 2006. His successor is expected to play an equally important role.
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