By Michael D. Shear and Neil Irwin
Washington Post Staff Writers
Tuesday, August 25, 2009
OAK BLUFFS, Mass., Aug. 24 -- President Obama will reappoint Ben S. Bernanke as chairman of the Federal Reserve, administration officials said Monday night, electing to maintain continuity in the nation's most powerful economic policymaking job in a time of crisis.
The decision, expected to be announced Tuesday morning, ends speculation about the fate of the nation's top banker. Bernanke won praise for the unprecedented actions taken to contain the recession, but came under withering criticism from lawmakers for not preventing the financial meltdown that dragged the country and the rest of the world into a deep downturn.
If the Senate confirms him, Bernanke would serve a second four-year term when his current one ends on Jan. 31. He would, in his second term, begin the difficult task of unwinding the Fed's extensive interventions in the economy.
A senior White House official said Obama has been impressed by Bernanke's handling of the economic crisis over the past year and wants to maintain a steady hand in place as the economy begins to recover.
"The president wanted the team that has been working to rescue this economy together," the official said, speaking on the condition of anonymity because the decision has not been formally announced.
When Obama was elected, Bernanke seemed a long shot to be reappointed. He is a Republican -- appointed by George W. Bush to succeed Alan Greenspan -- and had failed to prevent a deep recession. Many Fed watchers expected Obama to turn to his current chief economic adviser, Lawrence H. Summers, for the chairmanship of the Federal Reserve.
But in the past nine months, Bernanke has undertaken a slew of bold actions to contain the crisis and to try to limit its damage to the broader economy. Under his leadership, the Fed has cut short-term interest rates essentially to zero, deployed nearly $2 trillion to support mortgage lending and lower long-term interest rates, created innovative programs to support lending to consumers and businesses, and undertaken stress tests of large banks that helped instill confidence.
In part because of those steps, the economy seems to be stabilizing. The nation seemed to be at risk of a Great Depression-style collapse last winter, and now it merely seems to be experiencing a deeper-than-usual recession.
The decision to reappoint Bernanke is likely to soothe financial markets. Financial analysts have overwhelmingly preferred that Obama stick with Bernanke, given the fragile economy, rather than replace him.
White House chief of staff Rahm Emanuel, Treasury Secretary Timothy F. Geithner and Summers all recommended to the president that Bernanke be retained, according to the administration official.
Summers, former president of Harvard University, was the leading alternative to Bernanke, and there were several dark-horse candidates.
But the administration official said Summers is staying in his current job "first, because no one can do what Larry can as the president's right-hand adviser on the economy and because the president wants and needs his whole economic team together."
Bernanke will be by Obama's side in Martha's Vineyard, Mass., Tuesday morning when the president reappoints him, though it is not clear when the Fed chairman arrived on the island. In remarks obtained by The Washington Post late Monday night, Obama praised Bernanke for guiding the country through the economic crisis and touted his abilities and personal skills.
"As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another," Obama plans to say. "Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall."
At the same time, Bernanke's record has some blemishes, which could complicate his confirmation. While he acted aggressively to contain the financial crisis once it happened, he did not foresee or prevent the popping of epic housing and credit bubbles.
And Bernanke has been deeply involved in several controversial decisions in the government's response to the crisis: To bail out Bear Stearns in March 2008. To allow Lehman Brothers to fail in September. To rescue American International Group two days later. And to ask Congress for a $700 billion financial bailout, and then use some of that money to make huge investments in Citigroup and Bank of America, among other firms.
In particular, he has drawn fire for his role in encouraging Bank of America to consummate its deal to acquire Merrill Lynch, which critics have argued amounted to government meddling in a private transaction.
However, while many lawmakers have sharply criticized specific Fed decisions, they have generally praised Bernanke personally. In his appearances before congressional committees and in private meetings, he has been respectful and straightforward.
Sen Charles E. Schumer (D-N.Y.) praised the administration's decision to reappoint Bernanke.
"He is smart, thoughtful, and not an ideologue -- the kind of person we need as we work to turn the economy around," Schumer said in a statement Monday night.
Bernanke has also in recent months launched an aggressive public campaign, unprecedented for the secretive Federal Reserve, to present a more positive face of the central bank to the public. He sat for a much-praised interview on "60 Minutes" in March and did a town-hall-style special on PBS in July.
He has also agreed to release more information about the Fed's operations to Congress, though his openness is still well short of what many lawmakers would prefer.
If confirmed, Bernanke would face a difficult next four years. The economy is very weak, with the unemployment rate at 9.4 percent and likely to climb in the months ahead. The financial system remains fragile. The Fed will eventually have to wind down its extensive interventions in the economy, lest a dangerous bout of inflation develop. And it is likely to have to exit its unconventional programs and raise interest rates before the economy is fully healthy again.
Irwin reported from Washington.