MercoPress. South Atlantic News Agency

Dollar and assets bubble, challenges for new Fed chief

The United States Senate approved Tuesday the nomination of Ben Bernanke to be the next chairman of the Federal Reserve, generally considered the most influential economic policy job in the world.

Bernanke was cleared on a voice vote after a short debate in the chamber amid strong bipartisan support. He succeeds Alan Greenspan, 79, who retires Tuesday after almost 19 years, making him the second-longest serving chairman at the central bank

Bernanke, a former Fed governor, is set to be sworn in at the Fed Wednesday and the world will watch to see what changes he will make at the central bank now he has the top job.

The 52-year-old monetary economist is a vocal proponent of inflation targeting at the Fed, a move that would create more formal policy rules than practiced by Greenspan, who relied heavily on intuition and flexibility.

Bernanke had three years as a Fed governor before moving to the White House in June to chair the Council of Economic Advisers. That helped him build a relationship with colleagues, one he has kept up through meetings with Fed Vice-Chairman Roger Ferguson and Governor Donald Kohn among others.

Still, economists contend that he must earn the kind of financial market trust and credibility for inflation-fighting his predecessor enjoyed.

Greenspan, 79, has led the U.S. central bank since August 1987 -- the second-longest tenure in the Fed's history -- and plans now to start a consulting business, write a book and give speeches. The departing Fed chief's success in keeping inflation curbed leaves his successor, who has met scant opposition from lawmakers, in a relatively strong starting spot.

But Greenspan's successor will take over an economy in a steady, if sputtering, recovery where price growth is stable. However, he also will have to contend with a number of looming problems.

One concern often highlighted by US economists is that the housing market is overvalued; a bubble that many analysts say was caused by Mr Greenspan slashing interest rates to 1%, their lowest level in 46 years. Another shadow is the effect of cheap imports on the inflation rate and the massive current account deficit.

The view is that the coming months may prove to be difficult in economic terms and are likely to require some deft handling.

In his Capitol Hill hearing last year, Bernanke said one of his priorities would be to stay on the policy course that Greenspan had set -- a pledge that reassured global markets.

In one of his last speeches as a Fed governor before moving to the White House, Bernanke argued that a "glut" of savings overseas was letting the United States fund its burgeoning trade gap without financial distress, expressing hope global imbalances could be resolved without crisis.

That speech touched off a vigorous economic debate over global economic imbalances -- imbalances some economists think may contain the seeds of Bernanke's first crisis.

"I'm pretty sure in the first term of Ben Bernanke, he's going to have to confront a significantly declining dollar," former Fed Vice-Chairman Alan Blinder told a Council on Foreign Relations meeting in New York.