| NEW YORK
NEW YORK Ben Bernanke has promised greater transparency and on Wednesday made one thing clear: the chairman of the Federal Reserve doesn't agree with his former boss on the economic outlook.
For several weeks now, former Fed chief Alan Greenspan had been upstaging Bernanke with his musings about the risks of a recession in 2007, rattling already nervous markets.
Wednesday made it clear, however, that Bernanke isn't taking cues from the Maestro.
Greenspan said in late February a U.S. recession was possible, explaining that: "When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign."
He added that "in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."
But on Wednesday, Bernanke said expansions have no discernible time frame and the business cycle is no longer on a fixed schedule.
"There seems to be a sense that expansions die of old age, that after they reach a certain point, then they naturally begin to end," Bernanke told the congressional Joint Economic Committee in Washington on Wednesday, in answering a question about Greenspan's opining about recession risks.
"I don't think the evidence really supports that."
Bill Gross, chief investment officer at Pacific Investment Management Co., said in an interview with Reuters that Bernanke is "reflecting the importance of the global economy and the potential influence of non-U.S. growth on our exports and therefore its ability to support a 'typical' business downturn. We monitor this as well, but while it is a diversifier, it carries risks as well should global growth turn down due to overinvestment."
Nevertheless, Bernanke downplayed the risk of recession in the United States, repeating he expects moderate economic growth. He also said the effect of the subprime mortgage problems on the broader economy should be "relatively small."
Still, the risk of inflationary pressures is not small.
Bernanke said monetary policy is still focused on ensuring core inflation moves lower even as economic growth weakens.
"Our policy is still oriented toward control of inflation, which we consider to be at this time to be the greater risk," he said. Still, "the uncertainties have risen, and therefore a little more flexibility might be desirable."
Bernanke's words are resonating just as much as Greenspan's with economists and strategists.
"I think I would do the same exact same thing Bernanke is doing," acknowledging that economic growth is moderating but that inflation risks remain predominant, said Mark Zandi, chief economist of Moody's Economy.com in West Chester, Pennsylvania.
"He's relying heavily on his sanguine forecast but at the same time has indicated that if economic growth weakens considerably due to problems in the housing and mortgage markets or a major financial accident, he will show a great deal of flexibility," Zandi added.
Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, agreed. "Bernanke is more of traditional economist that understands the lags of monetary policy and the effect on the economy."
For their part, the markets understand that Bernanke will take more time before raising interest rates if inflation does not improve from here, said Sowanick. "Bernanke will also be somewhat more patient, however, than what equities want before easing if necessary," he added.
But what Sowanick doesn't get is Greenspan: "Why does Greenspan now talk about a probable recession when he knew very well that his rate increases would have led to recession well before he left office?" Good question.