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Scapegoat at the Fed?

Monday, January 25, 2010; A16

THERE ARE MANY ways to interpret the election results in Massachusetts last week. Republican Scott Brown's improbable victory can be seen as a repudiation of President Obama's policies. You could say that it reflects nothing more than the shortcomings of the Democratic candidate, Martha Coakley. Or it may be an outburst of economic frustration aimed at no party and no politician in particular. But one thing Massachusetts did not represent was a mandate to make a national scapegoat out of Ben S. Bernanke, the Federal Reserve Board chairman.

Yet two Democratic senators seeking reelection in November, Barbara Boxer of California and Russell Feingold of Wisconsin, plus another planning to retire, Byron L. Dorgan of North Dakota, appear to read it that way. They took the occasion of last week's political upheaval to announce their opposition to another four-year term for Mr. Bernanke, whose current one expires Jan. 31. These senators' attempt to burnish their populist credentials by making Mr. Bernanke the fall guy for all the sins, real and perceived, of Wall Street fuels the right-left anti-Fed chorus in Congress that has already produced troubling attempts to subject the Fed to intrusive and counterproductive audits of its monetary policy. Many others in both parties are nervously or opportunistically sitting on the fence. The prospect that the Fed-bashers might actually come up with the votes to thwart Mr. Bernanke sparked a sell-off on Wall Street and prompted more than a little head-scratching among U.S. trade and investment partners abroad.

Mr. Bernanke has made mistakes, some that he has acknowledged -- such as the failure to regulate the mortgage market more rigorously before the financial meltdown -- and some that he still does not concede -- such as his support for the Fed's easy-money policies under his predecessor, Alan Greenspan. The Federal Reserve in general and Mr. Bernanke in particular must never be immune from appropriate accountability. Still, he has responded ably and appropriately to the crisis; without his leadership, the nation's economic condition might well be catastrophic, not merely difficult.

But the issue now is much bigger than whether Mr. Bernanke gets another term. By threatening his tenure for no apparent reason other than political panic and pandering, his new opponents have turned this confirmation process into a test of central bank independence, which is an indispensable element of modern economic management. If a stampede of spooked senators were to trample Mr. Bernanke's confirmation, the message to markets would be that the value of the U.S. dollar is hostage to short-term politics. That would deliver a huge, possibly lasting, blow to the economy.

The White House continues to back Mr. Bernanke, as do key Senate leaders, both Republicans and Democrats. The Fed chairman's supporters predict that cooler heads will ultimately prevail. Let's hope they're right.

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