WASHINGTON -- Ben S. Bernanke, the rookie aviator flying the central bank's monetary airplane through uncertain economic weather, last week survived his first major test with a soft landing. With Washington in a rancid mood this summer, the new chairman of the Federal Reserve Board has received little credit for a successful maiden flight that is very good news for the economy.
Bernanke's decision to pause on Aug. 8 and not increase interest rates for the first time in 18 meetings of the Federal Open Market Committee drew widespread complaints that he was a slacker in the war against inflation. But contrary to the expectations of these naysayers, core inflation figures released by the Labor Department Aug. 15 matched its biggest drop in three years. The markets, far more important than opinions of the economic savants, gave Bernanke a vote of confidence. A boost in bond prices reflected no fear of inflation.
Market approval of Bernanke's performance constitutes early success in achieving a most daunting task for any central banker: to slow a rapidly growing economy enough to control inflation without crashing and burning in a recession -- that is, a soft landing. Bernanke's legendary predecessor, Alan Greenspan, crashed twice in three attempted landings during his long tenure at the Fed. This early success constitutes a rare victory for President Bush, whose selection of Bernanke to replace Greenspan Feb. 1 did not win plaudits from the financial community or many conservatives.
Actually, no Fed chairman has been better qualified to run the Fed than Bernanke, who as chairman of Princeton's economics department was a leading student of monetary policy. He served for three years as a Fed governor before heading Bush's Council of Economic Advisers (CEA) for seven months prior to returning to the central bank. But he was not favored as Greenspan's successor by the Fed bureaucracy, conservative Fed-watchers or Wall Street speculators.
The popular choice to head the Fed was a familiar face in big-time economics: Martin Feldstein, a 66-year-old Harvard professor. As President Ronald Reagan's CEA chairman 23 years ago, Dr. Feldstein was the bete noire of supply-siders who designated him as "Dr. Gloom" for publicly demanding higher taxes and higher interest rates.