Markets take stock of Federal Reserve as Greenspan exits

Alan Greenspan last Tuesday stepped down as chairman of the board of directors of the Federal Reserve.

Alan Greenspan last Tuesday stepped down as chairman of the board of directors of the Federal Reserve.

In the news

Alan Greenspan last Tuesday stepped down as chairman of the board of directors of the Federal Reserve. The influential Greenspan ended his fifth term by raising the US interest rate for the 14th consecutive time. He achieved icon status over his 18 years in office, and is celebrated for his handling of the "Black Monday" stock market crash and the economic swings that occurred during the dot-com boom of the 1990s.

Greenspan, 79, doesn't intend to fully retire. He plans to write a book and open a consultancy. He passes the torch to Ben Bernanke, a former economics professor who chairs the President's Council of Economic Advisors. Bernanke is expected to be less politically involved than his predecessor.

Why does it matter?

"The foreign market will be concerned with this transfer because it affects the whole world," says Fred Bratman, president of Hyde Park Financial Communications. "It's not just a domestic challenge that Bernanke faces, but a global one."

The public is waiting to see if Bernanke will be able to fill Greenspan's shoes and handle the media scrutiny that Greenspan was able to manage so gracefully. According to Bratman, only time will tell if Bernanke will be able bring the same sense of normalcy to the US economy as Greenspan did when he was faced with times of uncertainty such as 9/11.

Five facts:

1 Prior to being appointed to the board of governors of the Federal Reserve in August 2002, Ben Bernanke taught economics at both Stanford and Princeton Universities. He has also written two textbooks on macroeconomics.

2 Bernanke will report directly to the President. In the governmental hierarchy, the Federal Reserve chairman is appointed by the President for a four-year term, and must then be approved by the Senate. Federal law mandates that the President must appoint someone who is a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country."

3 Five years ago, Bernanke wrote a prophetic Op-Ed for The Wall Street Journal asking "What Happens When Greenspan is Gone?" Bernanke argued that the Federal Reserve must maintain stability by creating a framework called inflation targeting, which would allow the agency to keep interest rates low and make it more accountable for policymaking.

4 President Wilson established the Federal Reserve in 1913 to give the US a safer economic system. Its function is to adjust interest rates to ensure the stability of prices. It controls 12 banks in major cities around the country.

5 Bernanke is set to preside over his first meeting as chairman of the Federal Reserve on March 28. His four-year term will expire on January 31, 2010.

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