Obama to nominate Bernanke for another term as Fed chief

Ben S. Bernanke
Ben S. Bernanke
President Obama on Tuesday will nominate Ben S. Bernanke to a second term as chairman of the Federal Reserve, administration officials said.

The announcement is a major victory for Mr. Bernanke, a Republican who was appointed by President George W. Bush almost four years ago and who had briefly served as chairman of Mr. Bush’s Council of Economic Advisers.

A top White House official said Mr. Obama had decided to keep Mr. Bernanke at the helm of the Fed because he had been bold and brilliant in his attempts to combat the financial crisis and the deep recession.

“The president thinks that Ben’s done a great job as Fed chairman, that he has helped the economy through one of the worst experiences since the Great Depression and that he has essentially been pulling the economy back from the brink of what would have been the second Great Depression,” the White House chief of staff, Rahm Emanuel, said Monday night.

Mr. Obama will announce his decision, with Mr. Bernanke at his side, at 9 a.m. at an appearance at Oak Bluffs School on Martha’s Vineyard, where the Obama family is vacationing this week.

White House officials said that Mr. Obama had effectively decided four or five weeks ago that he wanted Mr. Bernanke to continue, and that he formally discussed the job with him last week at a meeting with the Fed chairman in the White House.

The senior official said Mr. Obama did not offer the job to anyone else, even though a number of high-powered Democratic economists were considered potentially strong candidates to replace him.

Mr. Bernanke, who spent most of his career as a professor of economics, most recently at Princeton, took over the Fed in February 2006. His current four-year term as chairman will expire on Jan. 31.

When Mr. Obama was elected, many Democrats considered one of the most likely contenders for Fed chairman to be Lawrence H. Summers, a former Treasury secretary under President Bill Clinton and currently director of the National Economic Council in Mr. Obama’s White House.

Other rumored candidates included Alan S. Blinder, a professor of economics at Princeton and a former vice chairman of the Federal Reserve under Alan Greenspan; Janet L. Yellen, president of the Federal Reserve Bank of San Francisco; and Roger Ferguson, another former vice chairman of the Federal Reserve who is currently president of TIAA-CREF, the giant pension fund company.

Mr. Bernanke was a clear favorite among economists, especially those specializing in central banking and monetary policy.

A quiet and often unprepossessing person, Mr. Bernanke was a leading scholar of the Depression who had broken important ground on the links between financial crises and the real economy. In his work on what he called the “financial accelerator,” Mr. Bernanke argued that a run on banks or other disruptions in financial markets could turn a relatively mild downturn into a severe one.

Supporters of Mr. Bernanke, including many current and former Fed officials, said his academic background provided almost perfect preparation for the financial crisis that began when panic over mortgage-backed securities began spreading through the broader credit markets in late July 2007.

Unless the economy suffers another big shock, Mr. Bernanke is all but certain to win Senate confirmation for another term.

The financial system, which nearly collapsed last September after the bankruptcy of Lehman Brothers, is now in far better shape and credit markets have been operating much closer to normal for the last several months.

Nonetheless, some analysts caution that the economy is still so fragile that financial markets would react badly if President Obama decided to install new leadership at the Fed anytime soon.

“He’s the best person for the job,” John Makin, a senior fellow at the American Enterprise Institute, said of Mr. Bernanke. “Why would anyone want to change the Fed chairman now?”

Most economists now predict that the United States recession either has already ended or is about to end very soon. Although unemployment is 9.4 percent, higher than at any time since the early 1980s, a wide array of indicators suggest that the economy has hit bottom and is about to begin a slow if painful recovery.

The Dow Jones industrial average has soared since hitting bottom in March, and the stock index hit a new high for the year last Friday after new data indicated that sales of existing homes jumped much more sharply last month than most analysts had expected. On the same day, Mr. Bernanke cautiously delivered his most optimistic assessment in the last year, saying that prospects for a resumption of economic growth were good for both the United States and the global economy.

But Mr. Bernanke will not have an entirely easy time in winning Senate confirmation. Many lawmakers in both parties have been highly critical of the Federal Reserve’s efforts to bail out major financial institutions over the last year.

Senator Christopher Dodd of Connecticut, a Democrat and the chairman of the Senate Banking Committee, has repeatedly chastised the Fed for failing to recognize the dangers in reckless mortgage lending and inflated housing prices that set off the financial crisis.

Mr. Dodd has been skeptical if not flatly opposed to giving the Federal Reserve more authority to regulate “systemic risk” and to supervise giant institutions deemed too big to fail. Yet, he said he supported the decision to reappoint Mr. Bernanke.

Mr. Dodd also told Mr. Bernanke, in a Senate hearing last month, that his complaints about the Fed were primarily institutional rather than aimed personally at the chairman himself.

Representative Barney Frank of Massachusetts, a Democrat and chairman of the House Financial Services Committee, has also praised Mr. Bernanke.

“I think Bernanke has done a very good job,” he said last week, praising his decisiveness in introducing emergency credit programs and in cutting interest rates to fend off the crisis.

Source: New York Times

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