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Last Updated: Tuesday, 31 January 2006, 21:02 GMT
Bernanke approved as new Fed head
Ben Bernanke
Mr Bernanke is seen as a safe pair of hands
Ben Bernanke has been approved as the new head of the US Federal Reserve, and takes over at a tricky and complex time for the world's largest economy.

The US Senate cleared the way for Mr Bernanke to take over on Wednesday and replace Alan Greenspan, who leaves the post of chairman after almost 19 years.

Mr Bernanke, 52, was a member of the Fed's board before becoming an economic advisor to President George W Bush.

His appointment was widely supported and was approved by a voice vote.

'Post bubble'

Mr 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.

Greenspan will try to leave his successor with as clean a slate as possible
Lou Crandall
Analyst at Wrightson ICAP

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.

According to Stephen Roach, chief economist at Morgan Stanley, the Fed "now faces a most perilous post-bubble exit strategy - taking real interest rates up to a more normal level".

"That, in my view, will be an exceedingly delicate exercise," he said.

'Judgement required'

There is a feeling that Mr Bernanke may look to push US interest rates up once more in an effort to show the market he is serious about fighting price growth.

"It is understandable that a new Fed chairman would want to prove his inflation-fighting mettle right away," said economist David Jones. "But I think there is a danger that housing is more vulnerable than people realise."

The worry is that should rates move too high, then they may prick the housing price bubble and stunt consumer spending, the main motor of economic growth.

"The easy part of the tightening cycle is behind us now and so you're at the point where more judgment is required," said Dana Johnson, chief economist at Comerica Bank in Detroit.

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