In Depth: Federal Reserve

Ben Bernanke: New chairman hailed as great communicator

New Chairman of the Federal Reserve Ben Bernanke, PhD '79 If the reaction of financial markets is any indication, the appointment of Ben Bernanke, '79 MIT Economics PhD, is good news for the economy. Stocks rallied as news spread of his nomination to succeed Alan Greenspan as chairman of the Federal Reserve — a phenomenon caused in large part by Bernanke's reputation for being tough on inflation.

Bernanke is also expected to be Greenspan's equal in responding to crises.

According to MIT Sloan John C Head III Dean Richard Schmalensee, Bernanke has “a very even disposition, essential for one making major decisions on inevitably imperfect information, and good people skills, essential for his role as head of a rather large and diverse organization.”

Commitment to continuity

Jay Forrester, MIT Sloan Professor Emeritus, agrees. And he believes that Bernanke will have plenty of opportunity to display his cool.

“Bernanke may soon face the challenge of coping with the collapse of the housing price bubble that was created by the Fed's past low interest rates and excessive creation of money and credit,” says Forrester.

Also inspiring marketplace confidence is Bernanke's oft–stated intention to maintain continuity with the policies and strategies of the Greenspan years.

Not to say that the actions of the Fed under Bernanke will be strictly business as usual. Bernanke has developed a reputation for challenging conventions, particularly the Fed's tendency under Greenspan to be cryptic in its pronouncements.

‘You want to release information’

He advocates inflation targeting, for example, a practice in which the central bank sets and communicates an explicit goal for inflation and is then held accountable for meeting that goal.

“You want to release information,” Bernanke has said, “that helps the market and the public achieve more accurate expectations of future policy and the future state of the economy.”

As a former Federal Reserve governor with an unusually high profile, Bernanke is largely credited with the Fed's decision in 2005 to begin providing two–year inflation forecasts. In addition to greater transparency and inflation targeting, he is likely to stress the importance of international economic cooperation.

And young economists will be glad to know that Bernanke sees an important role for academic research in sharpening Fed policies.

“Economics is like trying to learn how to repair a car with the engine running. It's always changing,” he has said. “Having good economists to interpret data and present policy alternatives has a beneficial effect on policy making.”

Common sense, academic rigor, intellectual integrity

Bernanke's common touch is good news for the citizens he will be sworn to serve. He is known as a person who understands what it means to be middle income as well as disadvantaged.

Bernanke combines common sense with academic rigor and intellectual integrity to translate theory into effective policy — all the while clearly communicating his methods and intentions.

Members of the MIT community are quick to see the extent to which Bernanke demonstrates his Institute origins.

In announcing the selection of Bernanke as the 2006 commencement speaker, MIT President Susan Hockfield noted that in his career, in the academy, and in government, Bernanke has exemplified values that are central to MIT, “personal integrity, analytical rigor, an uncompromising drive toward excellence, and a commitment to public service.”

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