President Barack Obama plans to reappoint Ben Bernanke to a second term as chairman of the Federal Reserve, a position from which he guided the economy away from its worst recession since the 1930s and, the White House hopes, toward an economic recovery critical to its legacy.
Widely credited with taking aggressive action to avert an economic catastrophe after the financial meltdown last year, Bernanke will be nominated for another term as the helm of the central bank on Tuesday. Obama plans to make the announcement on Martha’s Vineyard, the Massachusetts island where he is vacationing for the week with his family.
Bernanke is expected to be at his side, said a senior administration official who discussed the nomination only on condition of anonymity because the news was not yet public.
By announcing he wants Bernanke for another term and not changing horses in midstream, Obama removes a sense of uncertainty on Wall Street.
Bernanke masterminded what is now seen as a successful strategy to lift the economy out of recession, unlock credit and stabilize financial markets, in part by using unconventional and unprecedented lending programs. But he’s not without his detractors, and the top Democrat on the Senate banking committee warned of a thorough hearing before Bernanke would take his post for a second time.
Many on Wall Street and in academic circles believe that Bernanke would be the best choice to lead the country into a sustainable recovery and would be in the best position to figure out when and how to reel in the trillions of dollars pumped into the economy to battle the crisis.
"Wall Street can rest a little easier now," said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. "Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk."
Bernanke, appearing last week at an annual conference in Jackson Hole, Wyo., received heaps of praise from economists, academics and central bankers from around the world for his handling of the crisis. In sharp contrast, just a year earlier, as the financial crisis intensified, Bernanke was under siege because of the unprecedented actions he was taking.
But his actions now are bearing fruit. The economy is emerging out of a recession and is poised for growth. However, the recovery will be slow and the unemployment rate, now at 9.4 percent, is likely to top 10 percent this year before it starts going down.
Even with this challenge ahead, many economists and Wall Street types believe Bernanke is best suited to deal with the challenge of lowering the unemployment rate, gradually reducing joblessness and fighting off any threat of inflation.
In remarks prepared for the announcement, Obama praised Bernanke for leading the country through the meltdown and, with his expertise on the Great Depression, helping to prevent a crisis rivaling that of the 1930s.
"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 free-fall," Obama said in prepared remarks obtained by the AP.
In sticking with Bernanke, Obama is looking to reassure the financial sector as well as foreign central banks that his administration has no plans to change course on its largely well-received approach to rescuing the industry from its meltdown or its management of overall monetary policy.
Bernanke has won admiration from Democrats and Republicans on Capitol Hill even as some lawmakers have urged him to retain the Fed’s independence and warned him not to become too cozy with the administration. Any move to replace Bernanke could have been perceived as injecting politics into the Fed, especially if Obama had turned to Lawrence Summers, his top economic adviser, as Bernanke’s replacement.
For Obama, there was little political downside in choosing to nominate Bernanke to a second four-year term. The move displays bipartisanship and a steady, unchanging hand on the economic tiller. Fully occupied with an attempted health care overhaul, Obama’s team could little afford the distraction of changing the head of the Fed.
"The actions we have taken to stabilize our financial system, repair our credit markets, restructure (the) auto industry and help the overall economy recover have all been steps of necessity, not choice," Obama said in prepared remarks for the announcement. "They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, all of these steps have brought our economy back from the brink. They are steps that are working."
Bernanke, 55, was appointed Fed chairman by President George W. Bush and sworn in Feb. 1, 2006, following Alan Greenspan’s 18-year tenure. His renomination requires confirmation by the Democratic-controlled Senate.
The news, breaking late Monday while Congress was winding down its August recess, drew a tepid — although speedy — response from Sen. Chris Dodd, the Connecticut Democrat who runs the Senate Banking Committee.
"While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice," said Dodd, promising a thorough confirmation hearing. "Chairman Bernanke was too slow to act during the early stages of the foreclosure crisis, but he ultimately demonstrated effective leadership and his reappointment sends the right signal to the markets."
Associated Press writers Jim Kuhnhenn in Washington and Jeannine Aversa in Jackson Hole, Wyo., contributed to this report.