Why Obama May — or May Not — Reappoint Bernanke to a Second Term as Fed Chairman

Ben S. Bernanke's term as Fed chairman expires on Jan. 31.
Ben S. Bernanke's term as Fed chairman expires on Jan. 31. (By Manuel Balce Ceneta -- Associated Press)
By Neil Irwin
Washington Post Staff Writer
Friday, August 21, 2009

JACKSON, Wyo. -- The world's top economists and central bankers have gathered here in the Grand Tetons, officially to talk about "Financial Stability and Macroeconomic Policy."

But in the hallways and hotel bar of this annual symposium, sponsored by the Federal Reserve Bank of Kansas City, another topic is being discussed: Whether Ben S. Bernanke will, or should, be appointed to a second four-year term as chairman of the Federal Reserve.

Bernanke's term expires on Jan. 31, and if President Obama follows tradition, he will announce his decision to reappoint Bernanke or name his replacement before Thanksgiving; possibly much sooner. That would soothe fears in the financial markets of a vacuum at the world's most powerful central bank and give the Senate time to confirm the nominee.

Leading economists and others who regularly deal with the Fed -- in other words, the kind of people who come to the Jackson Hole conference -- would generally prefer that Obama reappoint Bernanke. A Wall Street Journal survey earlier this month of 47 economists found near-unanimous support for a second term.

But privately, even the economists who favor sticking with Bernanke acknowledge that there are some solid reasons why Obama might choose to go another direction, perhaps naming top White House economic adviser Lawrence H. Summers. Dark horse possibilities include San Francisco Fed President Janet Yellen, former Fed vice-chair Roger W. Ferguson Jr. and Christina Romer, chairman of the Council of Economic Advisers.

Bernanke is scheduled to kick off the symposium Friday morning with a speech on how the financial crisis unfolded in the last year and its lessons for future policy. The speech could give some sense of what his priorities would be in a second term, if given one.

Here are several pros and cons of reappointing Bernanke, which summarize the consensus views of leading Fed watchers gleaned from several interviews:

Why Obama should reappoint Bernanke:

-- He helped pull the nation back from the abyss. Bernanke has remade the role of the Fed in the past 18 months, creating new lending programs, slashing interest rates to zero, and generally pulling out every tool imaginable (and even some that weren't) to save the U.S. economy from a Great Depression-caliber freefall. People will debate for decades how real that risk was, and how much credit Bernanke should get for averting it. What is unquestionable is that he took bold action and that the economy, while still weak, is in better shape than it was in the depths of the crisis.

-- Continuity. People in financial markets have developed an understanding of and respect for Bernanke. With the financial system still fragile, making a change could create dangers as a new Fed chairman got his or her sea legs.

-- No distractions. Obama has a crowded legislative agenda. Going with a new candidate creates the risk of distraction. Bernanke is highly regarded in the Senate, even among some senators who are critical of actions the Fed has taken under his leadership. And he is a Republican, helping assuage doubts about Fed independence.

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