MIT alumnus and macroeconomist Ben S. Bernanke (Ph.D. 1979), chairman of the President's Council of Economic Advisers, has been nominated to become chairman of the Federal Reserve. If approved by the Senate, Bernanke will replace Alan Greenspan, Fed chairman since 1987, early next year.
President Bush announced Bernanke's nomination for "Banker in Chief" at a press conference in Washington on Monday, Oct. 24.
Bernanke has "earned a reputation for intellectual rigor and integrity. He commands deep respect in the global financial community," Bush said.
With the legendary Greenspan standing beside him, Bernanke said that, if confirmed, his "first priority will be to maintain continuity with the policies and strategies established during the Greenspan years."
Bernanke, 51, is known for his deliberate, even contemplative, analytic style, his dry sense of humor and his detachment from the political fray. His MIT colleagues were unsurprised at Bernanke's emphasis on continuity for the Fed.
"He has always been thoughtful, attentive, precise. He's the kind of person you'd want as a surgeon," said lifelong friend Kenneth Manning, MIT's Thomas Meloy Professor of Rhetoric and of the History of Science.
Manning and Bernanke grew up in Dillon, S.C., a then-segregated town of 6,300 where Bernanke's father owned a drugstore. Both attended Harvard University, where Bernanke received the B.A. in economics in 1974, followed by the Ph.D. in economics from MIT. Bernanke was visiting professor of economics at MIT in 1989, an associate professor of economics at Stanford and a professor and department chair of economics at Princeton from 1996 to 2002.
He joined the Fed's Board of Governors in 2002.
Olivier Blanchard, MIT professor of economics, said, "Ben combines a keen sense of how to translate theory into actual policy, and an unusual ability to communicate. He will be a great chairman."
Bernanke has already influenced the Fed as governor and in his speeches and has developed a reputation for challenging conventional thinking.
Bernanke and Greenspan differ on inflation targeting, a practice in which the central bank sets an explicit goal for inflation. Bernanke favors targeting, which would hold the Fed accountable for meeting its own goals and make it harder to downplay economic risks.
The Fed's decision this year to begin providing two-year inflation forecasts has been credited to Bernanke's influence.
In addition to inflation targeting, Bernanke has expressed commitment to greater communicativeness and transparency for the Fed. Greenspan, while a giant of his time, was known for a certain opacity.
"You want to release information that helps the market and the public achieve more accurate expectations of future policy and the future state of the economy," Bernanke said in an interview published by the Fed.
Bernanke's interest in helping the public to understand and predict economic changes through Fed policies is reflected in his 2000 book, "Essays on the Great Depression," which examines America's devastating economic collapse of the 1930s. The lessons from that decade, Bernanke has said, include the urgent role of financial stability in maintaining social and political stability and the importance of international economic cooperation.
Young economists will be glad to learn 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. Having good economists to interpret data and present policy alternatives has a beneficial effect on policymaking. And good economic policy makes a very big difference to the welfare of the average person," he said.
Bernanke and his wife, Anna, have two children.
A version of this article appeared in MIT Tech Talk on October 26, 2005 (download PDF).