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Obama's reappointment of Bernanke caters to markets, lawmakers

President Barack Obama looks on Tuesday after announcing 
he is keeping Federal Reserve Chairman Ben Bernanke.

Associated Press

President Barack Obama looks on Tuesday after announcing he is keeping Federal Reserve Chairman Ben Bernanke.

WASHINGTON — Giving Ben Bernanke a second term as Federal Reserve chairman was the politically safe course for a president beset by multiple crises and wanting no new battles.

The decision also helped soothe jittery financial markets, while drawing applause across party lines.

President Barack Obama cited the former Princeton economist's role in navigating the nation through the worst economic distress in decades in offering him a second four-year term Tuesday. To do otherwise could have jeopardized the still-fragile recovery that Bernanke played a central role in engineering.

While other potential candidates were considered, including top White House economic adviser Lawrence Summers, any choice other than Bernanke might well have roiled Wall Street and touched off a fierce political battle in Washington.

"He couldn't have nominated anybody else. It would have been destructive to the financial markets," said Mark Zandi, chief economist at Moody's

Bernanke, 55, now faces the challenge of meeting the high expectations from the White House — and the rest of the country — to repair the battered economy. To keep inflation at bay, he also must tread carefully in unwinding hundreds of billions of dollars in Fed financial rescue programs once the recovery is under way.

"I'm sure he hasn't made all the right calls, but he doesn't have a political cell in his body, and that's what you need in a Fed chairman," said Sen. Bob Corker, R-Tenn.

Reconfirmation seems all but sure. White House officials feel certain that any vote of no confidence in Bernanke would come at much too high a political cost to lawmakers with the economy still in a fragile state.

Bernanke is recognized in academic circles as a leading scholar on the Great Depression, deemed a good area of expertise given the current crisis.

Although his present term doesn't expire until early next year, Obama moved to end speculation percolating in political circles and on Wall Street, announcing his decision on the Massachusetts island of Martha's Vineyard, where the president is vacationing with his family.

"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free fall," said Obama, with Bernanke standing by his side. "Almost none of the decisions he or any of us made have been easy."

First appointed chairman by President George W. Bush in early 2006, Bernanke has been widely praised by economists, and his reappointment was generally expected. Still, there remained some uncertainty. Bernanke has been criticized by some lawmakers for not doing more to head off the crisis, and by others for doing too much to combat it with what some see as an overly accommodating monetary policy.

White House chief of staff Rahm Emanuel and Treasury Secretary Timothy Geithner were the chief voices advising Obama to reappoint Bernanke. Obama decided about a month ago it was the appropriate move and told Bernanke of his decision last week during a meeting in the Oval Office, administration officials said Tuesday.

Bernanke's renomination "will bring continuity to the Federal Reserve that will send the right signal to the marketplace," said Senate Majority Leader Harry Reid, D-Nev. He said he expected Senate confirmation.

Even so, some lawmakers' remarks were pointed, suggesting Bernanke's confirmation hearings could produce fireworks even if the outcome seems assured.

Senate Banking Committee Chairman Chris Dodd, D-Conn., said, "Serious questions will be raised about the role of the Federal Reserve moving forward and what authorities it should and should not have."

Sen. Richard Shelby of Alabama, the committee's senior Republican, said he wanted to explore "the impact ad hoc decisionmaking had on the financial markets during the crisis," including what he called a panicked response by some regulators.

Senate Minority Leader Mitch McConnell, R-Ky., said he hoped the confirmation hearings would offer lawmakers "greater insight into the cumulative impact the administration's trillions in new spending, borrowing and debt will have on the American taxpayer."

Tom Raum covers politics and economics, and Philip Elliott covers the White House for the Associated Press.

Deep deficits

The good news: The White House predicted that the federal deficit for this year will be $1.58 trillion, down from an earlier projection of $1.84 trillion.

The bad news: The combined annual deficits over the next decade, including this year, will top $9 trillion, according to the projections. That will help push the national debt into the $20 trillion range by the end of the next decade. At the beginning of this fiscal year, the national debt was about $9.9 trillion.

And the reports predict that by the end of the next decade, the national debt will equal about three-quarters of the entire U.S. economy. That would be the highest proportion in six decades.

Obama's reappointment of Bernanke caters to markets, lawmakers 08/25/09 [Last modified: Tuesday, August 25, 2009 8:41pm]
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