As Ben Bernanke takes over the reins at the Federal Reserve after his all-but-certain confirmation tomorrow, Washington is bracing for the kind of noisy Fed transition it hasn't experienced since Alan Greenspan's first days more than 18 years ago.

Bernanke may be the new sheriff in town, but there are a number of players getting ready to challenge him. Other members of the Federal Open Market Committee, many of whom perhaps bristled at Greenspan's dictatorial power, will air their views in public before Bernanke chairs his first formal meeting in late March.

At the same time, politicians will give Bernanke harsh threats and warnings, reminding him that they can change laws that influence the Fed if they don't like Fed policies. And Greenspan himself, said to be preparing to join the speakers' circuit and write a book, will still be attracting the spotlight.

It's in this climate that Bernanke will have to assert his independence and authority. With Greenspan at the helm, politicians had an impossible time influencing Fed policy. His gravitas provided impervious body armor that protected him and the Fed. Bernanke enters with no such shield, and his first task is to build one.

Need for Independence

Economists say a central bank should be independent because the best monetary policy isn't always politically expedient. This year, for example, is an election year. Studies show that incumbents tend to do better when the economy is booming. If the Fed raises interest rates too much, a few senators and representatives may lose their jobs next fall.

Lately, the Fed has been increasing interest rates in a prudent, measured fashion to help release inflationary pressures. Federal funds futures indicate the market thinks the Fed isn't done. They suggest a quarter-point boost to 4 1/2 percent is virtually certain this week. The probability of an additional increase at Bernanke's first meeting in March slipped to about 70 percent as of the end of last week.

There will be lots of whining if the Fed continues to boost interest rates under Bernanke. George Soros recently went so far as to predict that the Fed's tightening may push the economy into recession in 2007.

Slower Growth

The noise will be all the louder if--as happened last week when fourth-quarter gross domestic product growth came in at a disappointing 1.1 percent--the economic data suggest Fed policy is causing pain. But inflation-fighting is not always painless. That's why we need an independent Fed.

The U.S. monetary authority is politically independent, but not immune from political forces. If the Fed caves to such pressures this year and eases up too soon, it would suggest to markets that monetary policy isn't as independent as it needs to be. This would raise perceptions of longer term inflationary risks, and be difficult for the bond market to digest.

Bernanke is a smart man, the leading student of monetary policy in his generation. Accordingly, one can say with great confidence that he has a plan to deal with these forces.
I expect his plan to have two main components. First, he will take advantage of a propitious schedule, which calls for him to give the Fed chairman's required semi-annual Humphrey-Hawkins testimony on Feb. 15.

New Sheriff

Bernanke will use the occasion to send a message to the world: There is a new sheriff in town, and he will be tough, tough, tough on inflation. He has a bully pulpit, and isn't afraid to use it.

He will probably offer enough newsworthy tidbits to generate heavy coverage--a new insight regarding a possible housing bubble, for example. In addition to showing politicians he can stand up to their cross-examination, his comments and the attention they get should dissuade any ambitious FOMC members from taking a run at the spotlight.

Second, Bernanke will have to back up the tough talk with tough actions. While futures markets are unsure whether his Fed will increase rates again, he needs to do so with relish, perhaps even increasing rates more than markets currently suspect. This will establish his credentials as an independent chairman, especially important in this election year.

If any harmony could be found in the comments and questions by the members of the Senate Banking Committee during Bernanke's confirmation hearing in November, it was probably in the recurring sentiment that the Fed chairman will be his own man.

By beginning his tenure with aggressive rate increases and a strong message, Bernanke may surprise markets, but he will be doing exactly what he was asked to do.

Kevin A. Hassett is a resident scholar and the director of economic policy studies at AEI.