WASHINGTON – Ben Bernanke, the president's chief economist, told senators Tuesday he'll continue the policies of Alan Greenspan if confirmed as Federal Reserve chairman and will make sure the central bank remains free of political influence.
Senate Banking Committee members, at a three-hour hearing on President Bush's choice to head the Fed after Greenspan retires, largely expressed confidence in the man who would take over a position seen by many as the second-most-influential job in America.
Maintaining continuity with Greenspan's policies is a top priority, Bernanke said.
"I intend to be flexible and to learn from experience," he said. "But I believe the right starting point is the point where we currently are, that Chairman Greenspan has demonstrated in his policymaking."
Bernanke also sought to assure lawmakers, investors and the public that he would make decisions on interest rates and other matters based on economic considerations, not political ones. "I will be strictly independent of all political influences," he said.
If confirmed as expected, Bernanke will lead the Fed at a time when the economy faces challenges, including bloated budget and trade deficits and worries about whether the high-flying housing market will crash. There also are concerns about high energy prices and the lackluster jobs market.
"All of your intellectual horsepower is going to be needed," said Sen. Debbie Stabenow, D-Mich.
Bernanke, 51, is a former Princeton professor and Fed governor who now serves as chairman of the White House Council of Economic Advisers. Lawmakers and the administration want him ready to take over when Greenspan retires Jan. 31, after 18-plus years at the helm.
Senators intend to act on Bernanke's nomination "as soon as possible," said committee chairman Richard Shelby, R-Ala.
Bernanke said he would move slowly and seek to build a consensus on the notion of inflation targeting — that is, numerically spelling out acceptable bounds for inflation. That's one area where he and Greenspan differ. Bernanke supports a numerical inflation target, Greenspan doesn't.
"This matter requires further study at the Federal Reserve as well as extensive discussion and consultation," the nominee said.
While Greenspan has argued that inflation targets can restrain the Fed's flexibility, Bernanke said that would not be the case.
He also spoke of the keen importance to the economy of making sure inflation stays under control. That, he said, will help job growth, allow consumers to maintain purchasing power and make it easier for businesses and investors to make plans.
Senators peppered Bernanke with questions about a wide range of issues including the trade and federal budget deficits.
While he said bloated budget deficits are a problem and must be curbed, he also said he didn't want to weigh in on various fiscal proposals. "I'm going to begin now, I think, a practice of not making recommendations on specific tax or spending proposals."
Greenspan, 79, received a large dose of criticism from Democrats when he supported Bush's call for big tax cuts in 2001.
Democrats were especially interested in whether Bernanke would run the Fed fully independent of the Bush administration.
"The credibility of the Federal Reserve rests in large part on broad confidence in its independence in the judgments it makes," said Sen. Paul Sarbanes of Maryland, the panel's top ranking Democrat.
On other issues Bernanke:
—Didn't foresee a major change in foreigners' appetites to hold U.S. dollar-denominated investments. That's important because foreigners are financing the country's massive trade deficits. If such investors sour on the United States, that could send stock and bond prices plunging and interest rates soaring and hurt the overall economy. The trade deficits should be whittled over time, but it "won't happen overnight," he said.
— Urged China to move forward on a more flexible currency. U.S manufacturers complain Beijing is keeping its currency artificially low, giving China a big trade advantage over U.S. companies and contributing to the loss of American factory jobs.
—Cautioned that long-term budget deficits and the upcoming retirements of baby boomers who will be drawing Social Security and Medicare benefits represent "a very serious challenge to our economy."
The Fed chief wields enormous power over the economy and the portfolios of millions of investors, large and small. The chairman carries much influence in shaping the Fed's decisions on interest rates. His words can move markets.
"Stepping into Mr. Greenspan's shoes will be a tremendous challenge," committee chairman Richard Shelby, R-Ala., told Bernanke. "Each person who sits in the chairman's seat has the opportunity to make that position his own and to become a leader in his own right."