Bernanke, Ben

▪ 2006

 On Oct. 24, 2005, the day that Ben Bernanke was named to replace Alan Greenspan as chairman of the U.S. Federal Reserve Board (Fed) after Greenspan's term ended in January 2006, the Dow Jones Industrial Average closed up roughly 170 points. Investors enthusiastically signaled their approval of the man Pres. George W. Bush had tapped to lead the Fed, in part because they expected Bernanke to uphold the style of fiscal management established by Greenspan, who had chaired the Fed since 1987. That vote of confidence was important because as Fed chairman, Bernanke would ultimately control the U.S. money supply, determine the direction of the federal funds interest rate, and influence the rate of inflation in the U.S. economy. A false step by the U.S.'s central bank could have negative reverberations worldwide.

      Benjamin Shalom Bernanke was born on Dec. 13, 1953, in Augusta, Ga., and grew up in Dillon, S.C., where his father worked as a pharmacist and his mother was a teacher. Bernanke graduated summa cum laude in economics (1975) from Harvard University and earned a Ph.D. (1979) from the Massachusetts Institute of Technology. His first professorial appointment was at Stanford University, where he taught economics from 1979 to 1985. He became a full professor in 1985 when he moved to Princeton University. Bernanke was appointed in 2002 to the Board of Governors of the Federal Reserve System, and he became noted for thorough research and diplomacy when opinions among the governors differed. His political strengths were also evident in early 2005 when he was named chairman of the President's Council of Economic Advisors.

      Bernanke coauthored an introductory economics textbook and published numerous scholarly works, many of which centred on monetary policy, the Great Depression, and business cycles. His analyses of the Great Depression suggested that as Fed chairman, he would work to prevent similar downturns—some of which, he argued, were prolonged by mistakes in fiscal policy. For some observers, however, his academic strengths represented a weakness. Past Fed chairmen usually had come from Wall Street rather than from academia, and it remained to be seen whether economic theory could prove itself in practice.

      One thing analysts agreed on was that Bernanke's leadership of the Fed would not be a carbon copy of Greenspan's approach. While Greenspan was famous for indirect and vague public statements, Bernanke insisted that he would speak without ambiguity. Although Greenspan rejected inflation targeting, Bernanke preferred the stability and economic growth that he believed would result from a publicly stated inflation objective. Perhaps most important, where Greenspan expressed opinions on political topics, taxes, and economic issues outside a central banker's purview, Bernanke insisted that he would limit his comments to fiscal policy, particularly his central concerns: inflation and unemployment. Ultimately, his endorsements from investors, economists, and politicians gave Bernanke the support he would need for a smooth transition at the Federal Reserve in 2006.

Sarah Forbes Orwig

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▪ American economist

in full  Benjamin Shalom Bernanke 

born Dec. 13, 1953, Augusta, Ga., U.S.

 

 American economist, who was chairman of the Board of Governors of the Federal Reserve System (Fed; 2006– ).

      Bernanke grew up in Dillon, S.C., where his father worked as a pharmacist and his mother as a teacher. He graduated summa cum laude in economics from Harvard University (1975) and earned a Ph.D. from the Massachusetts Institute of Technology (MIT; 1979). His first professorial appointment was at Stanford University, where he taught economics from 1979 to 1985. He became a full professor in 1985 when he moved to Princeton University, and he served as a visiting professor at both New York University and MIT. Widely published on a range of economic issues—including macroeconomics, monetary policy, the Great Depression, and business cycles—Bernanke was awarded both a Guggenheim and a Sloan Fellowship, and in 2001 he became editor of the American Economic Review. The following year he was appointed to the Board of Governors of the Fed, and he became noted for thorough research and diplomacy when opinions among the governors differed. His political strengths were also evident in early 2005 when he was named chairman of the President's Council of Economic Advisers.

      In 2005 Bernanke was nominated by U.S. Pres. George W. Bush (Bush, George W.) to succeed Alan Greenspan (Greenspan, Alan) as chairman of the Fed. He took office on Feb. 1, 2006. With his strong background in academia, Bernanke represented a clear break from previous Fed chairmen, who had usually come from Wall Street. While expected to uphold the style of fiscal management established by Greenspan, he brought certain important changes to the Fed, mainly in regard to inflation. Although his predecessor rejected inflation targeting, Bernanke preferred a stated inflation objective, which he believed would bring about economic growth and stability. In September 2008 he worked with Bush and Secretary of the U.S. Treasury Henry Paulson (Paulson, Henry) to draft the Emergency Economic Stabilization Act (Emergency Economic Stabilization Act of 2008), which aimed to protect the U.S. financial system during the subprime mortgage crisis, a severe contraction of liquidity in credit markets worldwide brought about by widespread losses in the subprime mortgage sector.

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