Bernanke Gets to Finish the Job

Posted by: Dan Beucke on August 24

By Theo Francis

Fed Chairman Ben Bernanke will get the nod for another four-year term from President Barack Obama on Tuesday morning, ending weeks of speculation but likely surprising few economists or policymakers.

The New York Times and Wall Street Journal reported the move Monday evening, around the same time the White House scheduled a 9 a.m. statement by the president at a school on Martha’s Vineyard, where the Obamas are vacationing. Any reappointment would require Senate confirmation.

Speculation has been brewing for some time over whether Obama would reappoint Bernanke, whose term expires in January. Many economists and the president have praised Bernanke’s role in stemming the financial crisis — arguing it would have been much worse had he not acted swiftly and decisively; but the former Princeton University economics professor has also come under fire for underestimating the repercussions of the subprime lending bubble and for moving too slowly when it came to consumer protection.

And the steps Bernanke has taken — often in concert with the Treasury, the Federal Deposit Insurance Corp., and other central banks across the globe — haven’t been without controversy. The Fed’s balance sheet has ballooned as it has printed money to keep the financial markets moving and provided guarantees to American International Group, Citigroup and others. Republicans and some fiscally conservative Democrats are warning increasingly about the risk of inflation as a result of some of the Fed’s moves, although Fed officials, the Administration and many economists say the bigger danger is driving the economy back into a recession by pulling back too soon.

Throughout the debate Obama has been consistent in his praise for the Fed chairman, so a renomination isn't entirely surprising. Still, Bernanke took the unprecedented step in late July of holding a "town hall” meeting to explain his views and the Fed's actions. In the spring, he sat down for an unusual interview with CBS’s “60 Minutes.”

In many ways, it seems as if Bernanke had prepared his entire career for the last 18 months. He devoted much of his academic life to the Great Depression, and in particular to preventing a repeat. Even some of the economic world's toughest critics -- and Bernanke's -- have praised his actions. And in his town-hall meeting, he explicitly said he took the actions he did because "I was not going to be the Federal Reserve chairman who presided over the second Great Depression."

His scholarship is likely to continue to inform his actions, through this term and into the next. Central bankers of the 1930s have been widely blamed for exacerbating the depression that followed the stock crash of 1929, not only by tightening monetary policy in the immediate aftermath, but also by tightening it again too soon after the first signs of recovery in 1936-1937. Bernanke, like economists in the Obama Administration, has warned that too sudden a pull-back could produce a "double-dip" recession.

Still, Bernanke's role in the financial crisis has likely already earned him a place in the history books -- for good, it seems for now. But even without reappointment to the four-year chairman's spot, his term as a member of its Board of Governors wouldn't expire until early 2020, leaving him in a position of influence for years to come.

It wasn't immediately clear just what prompted the sudden announcement, which took the Washington press corps by surprise Monday night. Indeed, on Sunday, Deputy Press Secretary Bill Burton told the traveling press on Air Force One to chill out -- nothing was planned:

MR. BURTON: All right. I have specific instructions from the President for the press corps. He wants you to relax and have a good time. Take some walks on the beaches. Nobody is looking to make any news, so he's hoping that you guys can enjoy Martha's Vineyard while we're there. ...