President Barack Obama went with the safe choice this week when he nominated Ben Bernanke for a second term as the nation's central banker. Some called it redemption for a George W. Bush appointee who was largely AWOL as irresponsible lending and debt-propelled spending sparked the credit and housing markets' collapse.
But Bernanke's aggressive response in the past year has helped contain the global fallout. And at this moment, the Federal Reserve chairman's reappointment helps Obama avoid a needless political battle in an already crowded landscape of health care reform, global warming and deficit spending. It also sends the financial system a reassuring sign, which should help the economy.
Obama is betting that Bernanke has learned from his mistakes and is best suited to attack the very challenges he helped create in his first term. Bernanke showed too much faith in the financial system's ability to police itself and in the resiliency of America's economy. He also underestimated the damage Bush had caused on an international stage, whose players continue to have an instrumental role in America's recovery.
But Bernanke moved quickly last fall after it was apparent the investment banks' collapse would reverberate on Main Street. He took a string of unprecedented actions to stave off bankruptcies of banks, investment houses and insurers, thereby easing global panic and averting another depression. Bernanke cut interest rates, funneled $1 trillion into the banking system and led a global effort to loosen credit to stem job losses and boost consumer spending.
Though Bernanke was widely expected to win a second term that would begin in 2010, Tuesday's announcement signals the Fed's monetary policy will not change overnight. That should further stabilize the credit, consumer and housing markets.
But Bernanke's defining moments may lie ahead. His independence and resolve will be tested soon enough. He must manage the recovery without allowing the Fed's massive influx of money to spark inflation. His duty to ease the monetary spigot could clash with the White House and Congress, both of whom — in new reports — now forecast the nation's deficit growing $9 trillion more in the coming decade. And a potentially higher unemployment rate — up to 10 percent next year from the current 9.4 percent — could dampen any return to robust growth. Bernanke's biggest challenges could be ahead. His failures, as well as successes, make him a strong pick for the job.