WASHINGTON – Giving Ben Bernanke a second term as Federal Reserve chairman was the politically safe course for a president beset by multiple crises and wanting no new battles.
The decision also helped soothe jittery financial markets, while drawing applause across party lines.
President Barack Obama cited the former Princeton economist's role in navigating the nation through the worst economic distress in decades in offering him a second four-year term on Tuesday. In so doing, Obama followed the pattern of other recent presidents in reappointing a central bank chief first appointed by a predecessor on grounds that he was doing a good job.
To do otherwise could have jeopardized the still-fragile recovery that Bernanke played a central role in engineering.
While other potential candidates were considered, including top White House economic adviser Lawrence Summers, any choice other than Bernanke might well have roiled Wall Street and touched off a fierce political battle in Washington.
"He couldn't have nominated anybody else," said Mark Zandi, chief economist at Moody's Economy.com. "It would have been destructive to the financial markets and nobody would have ever understood it."
Bernanke, 55, now faces the challenge of meeting the high expectations from the White House — and the rest of the country — to repair the battered economy. To keep inflation at bay, he also must tread carefully in unwinding hundreds of billions of dollars in Fed financial rescue programs once the recovery is under way.
The mild-mannered economist, who has taken some of the boldest, costliest actions of any Federal Reserve chief, does not bring heavy political baggage to the job, even though he served briefly as chairman of President George W. Bush's Council of Economic Advisers.
"I'm sure he hasn't made all the right calls, but he doesn't have a political cell in his body, and that's what you need in a Fed chairman," said Sen. Bob Corker, R-Tenn.
Reconfirmation seems all but sure. White House officials feel certain that any vote of no confidence in Bernanke would come at much too high a political cost to lawmakers with the economy still in a fragile state.
Bernanke is recognized in academic circles as a leading scholar on the Great Depression, deemed a good area of expertise given the current crisis.
Although his present term doesn't expire until early next year, Obama moved to end speculation percolating in political circles and on Wall Street, announcing his decision Tuesday morning on the Massachusetts island of Martha's Vineyard, where the president is vacationing with his family.
"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free-fall," said Obama, with Bernanke standing by his side. "Almost none of the decisions he or any of us made have been easy."
The announcement's timing also helped the White House divert attention from a pair of gloomy economic reports issued Tuesday by the administration and Congressional Budget Office predicting a slow recovery and giant deficits for years to come.
First appointed chairman by Bush in early 2006, Bernanke has been widely praised by economists, and his reappointment was generally expected. Still, there remained some uncertainty. Bernanke has been criticized by some lawmakers for not doing more to head off the crisis, and by others for doing too much to combat it with what some see as an overly accommodating monetary policy.
He also drew criticism for strong-arm tactics, along with former Treasury Secretary Henry Paulson, in pressuring Bank of America to acquire the failing Merrill Lynch & Co. And Bernanke put himself at odds with the administration recently by resisting its plan to create a consumer protection agency for risky financial products, arguing that those responsibilities should stay with the central bank.
Obama's announcement removed any uncertainty on Wall Street about a potential replacement.
"Changing Fed chairmen at this point in both the economic recovery and in the midst of ongoing financial rescue efforts would have added uncertainty and would have been disruptive to markets," said Tony Fratto, a former economic spokesman for Bush and himself a former Treasury Department official.
White House chief of staff Rahm Emanuel and Treasury Secretary Timothy Geithner were the chief voices advising Obama to reappoint Bernanke. Obama decided about a month ago it was the appropriate move and told Bernanke of his decision last week during a meeting in the Oval Office, administration officials said Tuesday.
Obama followed a pattern established by the past four presidents in reappointing Fed chiefs who had been in place when they took office. Republican Ronald Reagan in 1983 reappointed Democrat Paul Volcker, who had been first named chairman by Jimmy Carter. Alan Greenspan, a Republican first appointed by Reagan, was reappointed by George H.W. Bush, Bill Clinton and George W. Bush. The Bushes are Republicans and Clinton a Democrat.
Bernanke's re-nomination "will bring continuity to the Federal Reserve that will send the right signal to the marketplace," said Senate Majority Leader Harry Reid, D-Nev. He said he expected Senate confirmation.
Even so, some lawmakers' remarks were pointed, suggesting Bernanke's confirmation hearings could produce fireworks even if the outcome seems assured.
Senate Banking Committee Chairman Chris Dodd, D-Conn., said, "Serious questions will be raised about the role of the Federal Reserve moving forward and what authorities it should and should not have."
Richard Shelby of Alabama, the committee's senior Republican, said he wanted to explore "the impact ad hoc decision-making had on the financial markets during the crisis," including what he called a "panicked response" by some regulators.
Senate Republican leader Mitch McConnell, R-Ky., said he hoped the confirmation hearings would offer lawmakers "greater insight into the cumulative impact the administration's trillions in new spending, borrowing and debt will have on the American taxpayer."
Wednesday, August 26, 2009
Analysis: Bernanke is Obama's safe choice at Fed
In the August 26, 2009 story "Analysis: Bernanke is Obama's safe choice at Fed," Associated Press writers Tom Raum and Philip Elliott explain why it makes sense for Barack Obama to reappoint Ben Bernanke as Chairman of the Board of Governors of the Federal Reserve System: