Quiet exit for Greenspan, quiet start for Bernanke would be best scenario.

ASSUMING he becomes the new chairman of the Federal Reserve, what should Ben Bernanke do at his first meeting chairing the Federal Open Market Committee?

Well, imagine if you were taking over as a stepparent of a high-achieving teenager. Suppose the child was a straight-A student, active in community service and a general joy to be around. Would your first move be to change all the rules set by your predecessor?

Obviously, the right thing to do is to come in and maintain the policies that are working so well. With Greenspan's sterling reputation in mind, Bernanke has signaled to markets that this is exactly his plan.

The whole world will be watching Bernanke's first meeting to see if his Fed will be different from Greenspan's. That first meeting needs to make as little news as possible. The best way to accomplish this is to do in the first meeting whatever was done in the previous one. That way, no dramatic departure would be evident.

The timing of Greenspan's departure is unfortunate, however, and the current board seems to be managing the hand-off poorly. On Nov. 22, short-term interest rate futures jumped when the FOMC meeting minutes revealed some members expressed concern about the "risks of going too far in the tightening process," raising the possibility that the Fed may be nearing the end of its gradual increases phase.

It's natural that the Fed should be thinking about stopping. One reasonable guide for the federal funds rate is the "Taylor Rule," developed by Stanford economist John Taylor. He argued that the Fed should set the federal funds rate based on the difference between desired and actual inflation and half of the difference between actual and potential gross domestic product.

If the Fed thinks that inflation should be 2 percent, and that the economy is growing near potential when the unemployment rate is 5 percent, then the federal funds target should be 3.8 percent.

If the Fed instead thinks we're growing faster, and that the natural rate of unemployment is 5.5 percent, then the federal funds target would be 4.6 percent. That higher rate would slow the economy, and increase unemployment to a less inflationary level.

The truth may be somewhere between the two numbers, suggesting it would be fully sensible for the Fed to increase interest rates by 25 basis points twice more before Bernanke arrives, taking the rate to 4.5 percent. But notice: If this happens, Bernanke's first meeting will be different from Greenspan's last. Greenspan will raise rates a quarter point; Bernanke will hold them steady.

The market expects a policy change on Bernanke's arrival. How awful.

So what should the Fed do to fix this problem? Following a loosely applied Taylor rule, policymakers might just let rates climb to 4.75 percent in March and be done with it. Their language and speeches between now and then could make such a plan clear. But there is a serious risk--mentioned in the minutes --that this monetary policy would be too tight.

With some economic data, such as unemployment claims, looking a tad iffy, here's my solution: The Fed should increase rates 50 basis points in December, and then announce to the world that it's done moving for a while. Greenspan can then have a quiet last meeting in January, and Bernanke can have a quiet one in March. That would be the perfect way to start the economy's new relationship with the new Fed chairman.

Kevin Hassett is director of economic policy studies at the American Enterprise Institute.