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Bernanke Makes Inaugural Appearance Before Congress

February 16, 2006 at 12:00 AM EST
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JIM LEHRER: Now, learning Bernanke-speak. The new chairman of the Federal Reserve, Ben Bernanke, made his first appearance before Congress this week since taking over the job. And today he testified before the Senate Banking Committee. And he was asked about a wide range of subjects: The price of energy, the impact of deficits, and whether to leave interest rates at their current levels.

BEN BERNANKE: The interest rates we currently see are at some levels historically low. Take mortgage rates for example. They’re about 6.25 percent right now, which is relatively low historically.

Senator, there’s two possible mistakes: One is to go on too long and one is it not go on long enough. And it’s a very difficult balancing act and, as I said earlier, we don’t have any kind of mechanical rule. We don’t have built in any kind of set of future moves; as we go along, we are going to be looking carefully all at the data, higher energy prices would put pressure on inflation but higher energy prices would also hurt consumer budgets and would probably or could possibly lead consumers to spend less.

Widening deficits over a period of years will reduce national savings, will probably exacerbate the current account deficit, may raise interest rates and will probably inhibit the dynamism of the economy.

JIM LEHRER: And to David Wessel, deputy Washington bureau chief and columnist at the Wall Street Journal.

David first on matters of policy, were there any major differences between what Bernanke said and what his predecessor Alan Greenspan said?

DAVID WESSEL: No, in fact he’s trying very hard to convince us all that he is going to continue the monetary policy of Alan Greenspan. Alan Greenspan left office on Jan. 31, saying that more interest rate increases might be necessary and Mr. Bernanke said in his testimony this week that he agrees, more interest rate increases are going to be necessary.

JIM LEHRER: On issues like deficits, are they in sync?

DAVID WESSEL: Well, that’s different. Mr. Bernanke was very careful to duck questions about fiscal policy, deficits, taxes, even some questions that Mr. Greenspan in the past has been willing to answer.

Mr. Greenspan, for instance, was a very strong defender of the notion that if Congress cuts tax, they should find offsetting tax increases or spending cuts. But when Mr. Bernanke was asked about that, he took a pass. He said it wasn’t his business. So on matters outside of the Fed’s narrow purview he’s trying to be a lot less open than Mr. Greenspan was when he testified.

JIM LEHRER: What about his overview of the economy right now?

DAVID WESSEL: I think that his overview of the economy was something that Alan Greenspan would have said almost the same thing — perhaps different words but the same sense.

The most interesting moment came where he suggested that just maybe the economy could be on the verge of overheating, that is, growing so fast that it might spark some inflation. That’s not something that I remember Mr. Greenspan saying in the last couple of weeks. But that was really the only place. I think he was — he had studied Mr. Greenspan’s forecast and was determined to underscore the continuity in monetary policy.

JIM LEHRER: And the overheating of the economy, of course, inflation relates to keep raising interest rates if necessary, right?

DAVID WESSEL: That’s right. Mr. Bernanke’s prime mission, as he sees it, is to prevent inflation from breaking out and the major tool that the Fed has to do that is to pull the interest rate lever and slow the economy down. He expects them to increasing interest rates in order to produce that result.

JIM LEHRER: Now on the question of style, while the policy was the same, the approach and the use of words, were they the same?

DAVID WESSEL: No, it was really strikingly different. You know, I’ve been in Washington for almost as long as Mr. Greenspan was the chairman. And you had to sort of get with the Zen of Alan Greenspan. Alan Greenspan was denied some vital vitamin when he was a child and it prevents him from speaking in clear, declarative sentences.

Mr. Bernanke was a very successful college professor. In fact, Congressman Maloney from New York complimented him — and said, you must have been a good teacher — in the testimony this week. He spoke in clear sentences. I think as the clips you showed at the beginning showed, most intelligent people could understand what he’s talking about and that’s just a big change.

JIM LEHRER: But to give Greenspan his due, he intentionally kept things — he wanted things to be a little bit mystical, did he not or mysterious or not so clear?

DAVID WESSEL: I think he did. In fact, as you know, he joked about that. I think that reflects two things: One is Mr. Bernanke is committed to the notion that the Fed should be very open about what it’s doing and why. He comes from a tradition in academics that thinks that the economy works better when everybody understands what the Fed is looking at. So that — and Mr. Greenspan didn’t come from that tradition although he moved in that direction over his tenure at the Fed.

And I think the other thing is that Mr. Bernanke thinks that the world really needs to know what his agenda is because it will give them more confidence than he has the smarts and savvy to exceed Mr. Greenspan. I think that was his mission this week and in my opinion he did pretty well.

JIM LEHRER: But that compares with Greenspan, who wanted to keep people guessing a little bit so he would have more flexibility when somebody happened, right?

DAVID WESSEL: Absolutely. Mr. Greenspan maximizes flexibility because you could never go back to him and say, when you testified before Congress, you said this and then you did that, because the this sentence he uttered had so many clauses and caveats that he could never be pinned down. Mr. Bernanke doesn’t do that. Now I think he runs a risk because he may some day change his mind when the Fed meets at the end of March, the economy may look different to him than it does today and he my find that being so clear leaves people to compare his statements and suggest that he misled them but for now he’s taking this experiment, which will be fun for us to watch.

JIM LEHRER: OK, speaking of fun to watch. It’s only about a few days now and style and substance are watched very carefully and related to any Federal Reserve chairman. What’s been the reaction thus far in just a few days now to Bernanke and the financial community?

DAVID WESSEL: I think he passed his first test with flying colors. The most important thing he had to do was not to say something silly or something that sent the markets into a tizzy. He spent two days before congressional committees and didn’t do that.

I think he got the kid glove treatments from members of Congress. They weren’t as tough on him as they had been — some of them had been on Mr. Greenspan. I think he – basically the markets and the politicians and people like me who make a hobby of sort of rating Fed chairmen and there appearances think that he did a pretty good job for a guy who’s been on the job for just two weeks.

JIM LEHRER: But a pretty good job in his context or in a Greenspan context, or what kind of context?

DAVID WESSEL: I think in both contexts. As I say, his major mission was, don’t make a mistake that embarrasses yourself. So he didn’t do that. But I think people were impressed at his facility with a number of issues, at his ability to stand up to some pretty tough questioning today from Sen. Sarbanes about questions of bank charters and so forth.

He seems to have the self confidence to say, Senator, I just don’t know about that yet and I’ll get back to you.

So I think the reviews you get from the commentary on Wall Street and from what I picked up in the corridors of the capitol are, you know, this guy might actually be able to do the job, thank God.

JIM LEHRER: And the markets went up yesterday and they went up again today. Is there any relationship to that, do you think?

DAVID WESSEL: Well I think the markets went up because we have signs of strength in the economy and because oil prices came down a little bit. I don’t think you could say that he caused that. But if he had said something that unnerved the markets, the markets might have gone down.

JIM LEHRER: I see. He had the potential for a negative more than he did for a positive?

DAVID WESSEL: That’s correct; that’s correct.

JIM LEHRER: Finally, do you expect his every word to be parsed the way Greenspan’s were?

DAVID WESSEL: Oh, yeah, absolutely. I mean, there’s no more important economic official in the world. The markets are always looking for clues as to how his thinking is changing and how that will affect rates and they’re going to parse every word and he’s going to make it easy for them because he speaks so clearly and we’ll find out whether he thinks that speaking clearly is as good an idea in practice as he said it was when he was an academic.

JIM LEHRER: Is it your impression that he knows his every word will be parsed?

DAVID WESSEL: I think that none — no one who takes a job like this appreciates the strength of the megaphone they’ve been handed. And one of these days he’s going to say something that strikes him as innocuous and there are going to be ripples in the markets. I’ve seen it with almost every new Fed official and every Treasury official since I have been in Washington and I expect some day we’ll see it with him.

JIM LEHRER: OK. David, thank you very much.

DAVID WESSEL: My pleasure.