Ben S. Bernanke was born on December 13, 1953, in Augusta, Georgia. He received a B.A. in economics in 1975 from Harvard University (summa cum laude) and a Ph.D. in economics in 1979 from the Massachusetts Institute of Technology. Dr. Bernanke was sworn-in on June 21, 2005 as Chairman of the Presidents Council of Economic Advisers. Prior to his appointment to the Council, Dr. Bernanke served as a member of the Board of Governors of the Federal Reserve System.
Before becoming a member of the Federal Reserve Board of Governors, Dr. Bernanke was the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs and Chair of the Economics Department at Princeton University (1996-2002). Dr. Bernanke had served as a Professor of Economics and Public Affairs at Princeton since 1985.
Dr. Bernanke has published many articles on a wide variety of economic issues, including monetary policy and macroeconomics, and he is the author of several scholarly books and two textbooks. He has held a Guggenheim Fellowship and a Sloan Fellowship, and he is a Fellow of the Econometric Society and of the American Academy of Arts and Sciences. Dr. Bernanke served as the Director of the Monetary Economics Program of the National Bureau of Economic Research (NBER) and as a member of the NBERs Business Cycle Dating Committee. Dr. Bernankes work with civic and professional groups includes having served two terms as a member of the Montgomery Township (N.J.) Board of Education. Dr. Bernanke and his wife, Anna, have two children.
Beliefs and Views
Dr. Bernanke is an advocate of a strategy called inflation targeting where a central bank specifies a numerical goal for prices. The Federal Open Market Committee (FOMC) debated the strategy last February, and decided to table the discussion. Bernanke is unlikely to push the strategy unless he can gain approval from the rest of the Fed members. This is presently unlikely as Fed Governors Roger Ferguson and Donald Kohn are known to be opposed to the strategy.
The current belief by the financial markets is Bernanke is more of a “dove” than a “hawk” when it comes to raising interest rates. This is based upon past speeches dating back as far as 2002. In a November 2002 speech about the potential for deflation in the economy that has since become famous, Bernanke campaigned not only for looser monetary policy but also for the Bush tax cuts, both of which could generate "positive inflation" to prevent deflation. In a recent interview with The Times of London, Bernanke didn’t seem very concerned that energy-related inflationary pressures would bleed into core inflation. He stated "The evidence seems to be that it is primarily in energy and some raw materials and has not fed into broader inflation measures or expectations. My anticipation is thats the way its going to stay." Bernanke also voiced a “dovish” opinion on the federal budget deficit by stating it was about 2.6% of GDP this year and "thats not far above the long-term average."
As far as the US current account deficit is concerned, Bernanke blamed "a global savings glut," for the deficit during a speech in March 2005. Bernanke said the deficit was the result of “a shift that has transformed developing economies from borrowers on international capital markets to large net lenders to the developed world and the U.S.” This suggests Bernankes strategy to reduce the current account deficit would not stress the need for higher US interest rates to promote more savings at home. As an alternative, Bernanke would likely try to apply pressure on China to hasten the process of unpegging their currency (the yuan) from the dollar. Theoretically, this would increase US exports and reduce the huge trade deficit we have with China over time.
Our Impression
Although his views appear to be more “dovish” toward inflation than Alan Greenspan, Bernanke has stressed there would be continuity between his leadership and the legacy Greenspan is leaving behind. Plus, as Chairman, Bernanke will have to build solid consensus among all of the voting Federal Reserve members in order to craft Fed Policy. Fed Policy won’t consist of just his views and beliefs. We look for the Fed to continue to raise the Fed Funds rate until it reaches 4.5% sometime during the first quarter of 2006. The Fed should then pause and reassess their rate tightening cycle at that time.
Dr. Bernanke absolutely has a first-rate mind and is just as sharp as they come. Hes the product of Ivy League schools, a member of the National Bureau of Economic Research, a highly respected macroeconomist, and the former chair of Princetons economics department. We expect Bernanke will be a good communicator of Fed Policy as he tends to speak plainly and wants Fed Policy to become “more transparent.” While Bernanke is quite serious, very disciplined, and rather soft-spoken, he will bring intellectual leadership, verbal power and precision, and a prodigious work ethic as Chairman of the Federal Reserve. His willingness to speak his mind stems from a conviction that clear communication goes hand-in-hand with good monetary policy.
