President Bush nominated Princeton University economist and former Federal Reserve governor Ben Bernanke Monday to succeed Fed Chairman Alan Greenspan, turning to a highly regarded scholar expected to follow an inflation-fighting course similar to that of the man he succeeds.

The nomination sets the stage for Senate confirmation hearings that should focus on the policies of the nation's central bank rather than the qualifications of its proposed leader.

In a carefully scripted ceremony Monday, with an uncharacteristically silent Greenspan at his side, Bush said Bernanke, 51, had the judgment and character to replace a legend when Greenspan, 79, retires Jan. 31, after an 18-year career that has made his name virtually synonymous with the Fed. Bernanke now serves as chairman of the president's Council of Economic Advisers.

Short-term rates

The Federal Reserve holds enormous sway over the U.S. and world economies, mainly through its ability to set the short-term interest rate which banks use as a benchmark for business loans, home mortgage and credit cards.

Under Greenspan, the Fed had lowered its baseline interest rate to 1 percent to jolt the nation out of recession. Now it is now raising that same rate in quarter-percentage point increments amid an uptick of inflation.

Bernanke's first decision, if confirmed as Fed chief, will be whether to continue the tightening cycle started under Greenspan.

Bernanke, a former Stanford University professor, served as Fed governor from 2002 until June, when he went to the White House. He promised the nation his best effort Monday, thanked his wife and two children for their support, and pledged "to maintain continuity with the policies and policy strategies established during the Greenspan years."

Bond investors, who live and die on inflation concerns, staged a mild sell-off Monday that boosted long-term interest rates. Traders said this was due to the deep trust market participants have had in Greenspan.

"Despite my endorsement of Bernanke, he is a question mark relative to Greenspan,'' said Bill Gross, managing director of Pimco, the giant money management firm in Newport Beach (Orange County).

Appointment praised

Economic, business and market leaders generally hailed the appointment. Conservative economist Martin Feldstein, chairman of the National Bureau of Economic Research, who had been touted as a possible Greenspan replacement, called Bernanke a first-rate monetary economist.

Despite the theme of continuity, Bernanke and Greenspan differ in one important respect.

Greenspan took a hard line on inflation, but rarely tipped his hand on what level of price increases he thought would be appropriate. By contrast, Bernanke favors setting some form of inflation target -- a line in the sand that when crossed would presumably start automatic Fed interest rate increases when the inflation rate gets too high -- and broadcasting it publicly.

That could bring Bernanke into conflict with other high-ranking Fed officials, notably Donald Kohn, who is a Greenspan protege and was one of those on the short-list for the chairman's job, said W. Lee Hoskins, former president of the Cleveland Federal Reserve Bank, now a fellow at the Pacific Research Institute in San Francisco.

"Greenspan kept all the cards close to his vest and spoke out (in general terms about inflation) but never set a target,'' Hoskins said.

Critics of inflation targeting caution that the policy could make the Fed too rigid in pushing up interest rates, even at the cost of making recessions worse than need be.

"This would further subordinate or eliminate the Fed's statutory duty to promote full employment," said Tom Schlesinger, executive director of Financial Markets Center, a liberal research group.

But Columbia University economist Frederic Mishkin, who coauthored a book on inflation targeting with Bernanke, said the nominee doesn't have a rigid approach.

"He made it very clear that central bank inflation targets had to be flexible," Mishkin said.

Fed policymakers include seven governors appointed by the president and confirmed by the Senate to 14-year terms. Two seats are vacant.

The governors sit on the Fed's interest-rate committee with 12 regional Federal Reserve presidents, appointed by boards made up of regional business leaders. Only five presidents at any time vote on rates.

Outside of policy, Bernanke will probably differ with his predecessor in another regard -- he speaks plainly, where Greenspan's pronouncements are famously circuitous.

"Bernanke is likely to be quite charming to people because he is fluent in English,'' said William Greider, a critic of mainstream thinking on monetary policy. "Nevertheless he is in the church of hard money.''

Greider was referring to the notion that the central bank's top job is inflation-fighting, with economic and job growth taking a back seat.

Bernanke also has a sense of humor, as revealed in a speech before the American Economic Association in January. Bernanke, then a Fed governor, complained that the only thing he didn't like about his job is that he had to signal his seriousness by wearing a suit.

"My proposal that Fed governors should signal their commitment to public service by wearing Hawaiian shirts and Bermuda shorts has so far gone unheeded,'' Bernanke quipped.

As Fed governor, Bernanke took a lead role in explaining the Fed's efforts to stave off deflation -- an actual reduction of prices, which generally slows growth and jobs.

In a November 2002 speech, Bernanke mentioned a comment by economist Milton Friedman, who once used the metaphor of the Fed dropping money out of a helicopter as a way to pump up economic growth. That prompted some inflation-fearing investors to refer to him as Ben "Helicopter" Bernanke, a barb against his supposed commitment to easy money.

Friedman, 93, now retired and living in San Francisco, chuckled Monday to think that Bernanke's use of the helicopter metaphor had gotten him labeled as dovish on inflation.

"What's important is not dove or hawk on inflation but the emphasis on price stability as the main job of the Fed, and I'm convinced Bernanke shares that," Friedman said.