Bernanke confirmed by Senate for 2nd term as Fed chairman
Friday, January 29, 2010
The Senate on Thursday confirmed Ben S. Bernanke for a second term as Federal Reserve chairman, but he scraped by with the narrowest margin in the history of the position and his weakened political standing could weigh on the central bank's ability to maneuver for years to come.
The Senate voted 70 to 30 to give Bernanke four more years as the nation's most powerful economic policymaker, after a sometimes-heated debate in which members of both parties -- including some who eventually voted in his favor -- assailed the Fed's actions under his leadership.
While Bernanke won a majority of both Democrats and Republicans, he received more "no" votes than any Fed chairman before, topping Paul A. Volcker, who was confirmed 84 to 16 in 1983.
That congressional anger at the Fed -- and at Bernanke himself -- will color Bernanke's second term. The Fed is designed to be insulated from politics so that its leaders can take a long-term view, especially in setting interest rates. But the Fed is now under greater pressure than at any time in recent history. And after his relatively close call on confirmation, Bernanke may not have the political clout to fend off attacks on the central bank, said people who study the Fed.
"He's coming out of this with less political capital," said Brian Gardner, a Washington analyst for the investment bank Keefe, Bruyette & Woods. "How does he go back to ask senators who stuck their neck out for him to stick with him again? This leaves him in a weakened state."
Congress is considering stripping the Fed of its power to regulate banks, which Bernanke considers central to the Fed's mission. He views a separate congressional effort to initiate audits of the Fed's monetary policy to be a dangerous threat to the central bank's independence.
And the pressures on Bernanke could mount further when, at some point in his new term, the Fed will inevitably raise interest rates -- never a popular action. The Fed is now pulling out all the stops to support the economy, including keeping a key target interest rate near zero.
While the Fed has wide legal latitude to make its own decisions and even controls its own budget, the institution remains a creation of Congress, and lawmakers can change the rules under which it operates. So Fed leaders remain highly cognizant of concerns on Capitol Hill and in the executive branch.
The central bank has been under intense fire for its decision to bail out the insurer American International Group and for refusing to disclose which banks and other firms have tapped various emergency lending programs. Anger at the Fed has been brewing for more than a year, including over its role in bailing out financial firms and its regulatory failures that helped cause the crisis. Many lawmakers view the central bank as too close to Wall Street interests.
Still, until this month, Bernanke's nomination had appeared to face only modest opposition. It was thrown into question late last week amid a burst of populist sentiment among lawmakers after the surprising GOP victory in Massachusetts's special Senate election.
In agreeing to confirm Bernanke, some lawmakers have pursued concessions from him. Senate Majority Leader Harry M. Reid (D-Nev.), in announcing his intention to vote for Bernanke last week, gave an explicit signal that the vote comes with conditions.
"I made it clear that to merit confirmation, Chairman Bernanke must redouble his efforts to ensure families can access the credit they need to buy or keep their home, send their children to college or start a small business," Reid said in a statement. "He has assured me he will soon outline plans for making that happen, and I eagerly await them."