I am pleasantly surprised to see the news this morning that President Obama has decided to give Ben Bernanke a second term as the Federal Reserve Chairman. Bloomberg reports that the President made the announcement today:
Bernanke "has led the Fed through one of the worst financial crises that this nation and the world have ever faced," Obama said in Martha's Vineyard, Massachusetts, with Bernanke at his side. "As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another," Obama said. "But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve."
That's exactly right. His performance, thus far, has been stellar. Though, his job in managing the crisis is far from over.
I think history will show us two things about Bernanke's work over the past few years. First, his influence in preventing a total catastrophic market failure was far greater than that of Treasury Secretary, President and Congress. The Fed's programs and policy actions stabilized the financial system when every major bank was on the brink of failure.
Second, he had nothing to do with creating the crisis. By the time he took the post, the real estate bubble had already been almost entirely inflated. It really peaked in 2006. As soon as 2007 hit, the signs began showing that the something was beginning to go terribly wrong, as mortgage companies began failing and banks began declaring big losses related to mortgages.
Of course, the jury is still somewhat out on how well Bernanke's policies will ultimately pan out. They certainly did their job in the short-term. But the world will be watching over the next few years to see how he slowly contracts money supply and ends various programs without causing an unusually nasty double dip recession. I don't think it's impossible, but I don't think it will be a cinch. I do, however, think Bernanke will have a much easier time resisting political pressure than an Obama administration appointee would have. That's great news for the economy.
Two final observations:
First, surely not everyone is happy about Bernanke's reappointment: I'm sure several other prominent economists would have liked the job. Larry Summers comes to mind. I guess he'll have to continue to remain a mere advisor to the President rather than arguably the most powerful man in economics.
Second, something of a new precedent seems to have been set by Bernanke when it comes to campaigning for reappointment. As mentioned a while back, we've never really seen a Fed chief going on a road show to try to garner greater support for the Fed. While these are unprecedented times in economics, even in good years when a Fed appointee came from a prior administration, he or she now might have to play the political game a little to seem like one of the team. I don't think that's great, as the Fed should remain independent.
In my opinion, reappointing Bernanke was one of Obama's smartest moves to date. It should win him some points with the public. Though with the incredibly negative view of the Fed that the public holds, it's a little hard to tell.