It's not always easy to listen to Senators bloviating. Yet last week Ben Bernanke, the mild-mannered economist who is approaching his six-month mark as chairman of the Federal Reserve Board, looked as focused as a patient parent listening to a child. Tom Carper, a Senator from Delaware, took note of Bernanke's attentiveness. One departed Cabinet secretary, Carper said, used to appear before Congress and "sit there with papers spread all around him and read this and that." Not Bernanke. "You listen to everyone," Carper said in amazement. And so Carper couldn't help bringing up the obvious question: "What do you actually think about when we give our opening statements?"
Inflation, Senator. And growth rates. And the current account deficit. And inflation. And maybe what's for lunch. When he took over the Fed from Alan Greenspan on Feb. 1, Bernanke became the man portrayed as having his hand on the controls of the U.S. economy. If prices rise rapidly or the economy slows, Bernanke gets blamed. If the economy continues to grow at a healthy clip, he's celebrated.
Theoretically, the Fed chairman isn't all-powerful; whether to raise or lower taxes, for example, isn't up to him. But partly because interest rates, which the Fed does control, fundamentally affect the way consumers and businesses spend money and partly because Greenspan solidified the standing of Fed chairman as a demigod, every thought that Bernanke utters is treated as Delphic. "The U.S. economy appears to be in a period of transition," he told Congress, with the robust growth of the past three years moderating, which in turn should help keep inflation in check. The stock market rallied, anticipating an end--if not in August, then perhaps in Septemberto the two-year cycle of interest-rate rises.
The economy isn't the only thing in transition. The Fed itself is feeling the Bernanke effect. You could take that opening scene of Bernanke carefully considering each Senator's words as a leading indicator that a shift is afoot on Constitution Avenue. Listening, mulling, debating, airing opinions of all stripesthese are hallmarks of Bernanke, honed during his years as an academic economist, first at Stanford, then at Princeton, and that style is spilling over into the way economists at the Fed communicate as they forge the nation's monetary policy. More brainstorming, apparently, means more clarity.
That new approach was on display in the Senate as Bernanke answered questions with a level of precision unknown during Greenspan's 18-year tenure. Greenspan had become famous for long, convoluted answers that could stop time but only rarely ("irrational exuberance") ruffled the markets. Asked about the nation's blooming deficit, Bernanke answered crystal clearly, "Deficits matter because they represent additions to debt that our children and grandchildren will either have to pay through higher taxes or reduced services." Bernanke's wit also made a guest appearance. When Maryland Senator Paul Sarbanes asked Bernanke whether rising rents and their impact on the weakening housing market would make him think "one and a half times" about raising interest rates, Bernanke responded, "No, I'll think twice, Senator."