Ben Bernanke could prove to be a fine Federal Reserve Board chairman in the long run, assuming he is confirmed, but his honeymoon threatens to be a stormy period for the financial markets. Analysts say Bernanke’s refreshingly clear speaking style could spook the markets, which have become used to Alan Greenspan’s soporific version of Fedspeak.
While Bernanke has been prepared for the job, with a three-year stint as a Fed governor before heading the White House Council of Economic Advisers, he lacks experience on Wall Street. And while no one accuses the former Princeton economist of being loose-lipped, the markets demand to be spoken to in a certain tone and prefer that some things remain unsaid.
Bernanke, whose nomination sailed through the Senate Banking Committee on a voice vote in mid-November, has promised to maintain the same policies and strategies as Greenspan, which could help to produce a smooth leadership transition at the Fed. Nonetheless, baptisms by fire are not unknown. Just ask Greenspan about the stock-market crash of October 19, 1987, that followed within a few months of his taking the helm.
The dollar slipped initially on news of Bernanke’s nomination, based on the assessment of foreign exchange traders that Greenspan’s successor could have dovish tendencies and might be somewhat less willing to raise rates. The bond market had no such worries, however, and seemed to become an instant Bernanke backer.
The new Fed chief will be more inclined to be open and clear about monetary policy and to let the markets react as they may, whereas Greenspan carefully shaped market expectations, analysts say. If Bernanke follows clear targets and rules, however, he just might be able to reduce market volatility while saying what he is thinking.