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Bernanke to Be Nominated for Second Fed Term by Obama

Julianna Goldman, Peter Cook and Michael McKee

Aug. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to avert a second Great Depression, will be nominated to a second term by President Barack Obama, according to an administration official.

Obama will make the announcement tomorrow on Martha’s Vineyard, Massachusetts, where he is vacationing with his family, and Bernanke is expected to join him, said the official, who spoke on the condition of anonymity. The nomination requires Senate approval. Bernanke’s four-year term as chairman expires Jan. 31.

Bernanke, 55, slashed the main interest rate almost to zero, pumped $1 trillion into the banking system and led rescues of Bear Stearns Cos. and American International Group Inc. He now must guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed’s balance sheet to prevent a surge in inflation.

“He did whatever was needed to be done to actually prevent a depression, and he’ll do whatever needs to be done in terms of preventing inflation,” Frederic Mishkin, a former Fed governor and research collaborator of Bernanke’s who is now a Columbia University professor, said in an interview with Bloomberg Television last week in Jackson Hole, Wyoming.

Obama, who made the decision before he left for vacation yesterday, admired Bernanke’s leadership during the financial crisis and felt that he is still needed at the helm of the central bank as the economy recovers, said the administration official. He said Obama’s decision was based on what he described as Bernanke’s bold and creative actions to pull the financial system back from the brink.

Threats to Independence

The Fed chief faces threats to the central bank’s independence from members of Congress who say he overstepped his authority as he battled a crisis that froze credit markets and led to $1.6 trillion of writedowns and losses at financial firms. Bernanke was criticized as too slow to respond to the housing slump and for calling the crisis “contained” before reversing course in August 2007 and cutting interest rates.

Legislation in the House would subject the Fed’s monetary policy to audits by the Government Accountability Office, a change Bernanke opposes. Under a regulatory overhaul proposed by the Obama administration, the Fed would need the Treasury Department’s approval before invoking emergency powers used in bailouts and loans to non-bank financial institutions.

Redefined Role

“It’s easy with hindsight to say he wasn’t perfect, he should have moved faster,” Laurence Meyer, vice chairman of Macroeconomic Advisers LLC and a former Fed governor, said in a Bloomberg Television interview in Jackson Hole, Wyoming, where Bernanke and other central bankers gathered Aug. 20-22 for an annual retreat.

“Once he did recognize the crisis, he moved extremely aggressively, very creatively and I think you have to take a step back and say that the efforts and the leadership he gave brought the economy back from the edge of the abyss,” Meyer said.

To contact the reporters on this story: Julianna Goldman in Washington at [e-mail]; Michael McKee in New York at [e-mail].

Last Updated: August 24, 2009 21:41 EDT