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Bernanke hailed as financial hero; his work still unfinished

Bernanke hailed as financial hero; his work still unfinished
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First Published: Thu, Aug 20 2009. 10 53 PM IST

Soaring credibility: Ben Bernanke. Joshua Roberts / Bloomberg
Soaring credibility: Ben Bernanke. Joshua Roberts / Bloomberg
Updated: Thu, Aug 20 2009. 10 53 PM IST
Washington: Ben S. Bernanke, the chairman of the US Federal Reserve, no longer looks sleep-deprived.
He still works seven days a week, but earlier this month, for the first time in two years, he took two days off to attend his son’s wedding. And he often gets home for dinner and even out to baseball games every few weeks.
Soaring credibility: Ben Bernanke. Joshua Roberts / Bloomberg
As central bankers and economists from around the world gather later on Thursday for the Fed’s annual retreat in Jackson Hole, Wyoming, most are likely to welcome Bernanke as a conquering hero. In Washington and on Wall Street, it would be a surprise if President Barack Obama did not nominate Bernanke for a second term, even though he is a Republican and was appointed by former president George W. Bush.
But the White House has remained steadfastly silent. And despite Bernanke’s soaring credibility in financial circles, both he and the Fed as an institution have come under political fire from lawmakers in both parties over the handling of particular bailouts and the scope of the Fed’s power.
He has been frustrated that many in the US Congress do not give the Fed enough credit for what it has accomplished. Indeed, Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed’s rescue strategy.
Fellow economists, however, are heaping praise on Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s. Tossing out the Fed’s standard playbook for economic downturns, Bernanke orchestrated a long list of colossal rescue programmes: Wall Street bailouts, shotgun weddings, emergency loan programmes, vast amounts of newly printed money and the lowest interest rates in US history.
Even one of his harshest critics now praises him. “He realized that the great recession could turn into the Great Depression 2.0, and he was very aggressive about taking the actions that needed to be taken,” said Nouriel Roubini, chairman of Roubini Global Economics Llc, who had long criticized Fed officials for ignoring the dangers of the housing bubble.
Bernanke is hardly breathing easy. Unemployment is still sky-high at 9.4%, and the Fed’s own forecasts assume that it will remain that high through the end of next year.
Fed officials say that Bernanke’s current popularity could sink sharply as the recovery proves slower than many people expect.
“The idea that we’re going to have smooth sailing from here strikes me as absurdly complacent,” said one Fed official. “The challenges we will have in the next few years are at least as consequential as those we faced in the last few years.”
Bernanke faces two major challenges. On the economic front, the Fed must decide when and how it will reverse all its emergency measures and raise interest rates back to normal without either stalling the economy or igniting inflation.
On the political front, Bernanke is trying to defend the Fed’s power and independence as the White House and Congress debate plans to overhaul the system of financial regulation.
But economists say Bernanke’s most important accomplishment was to create staggering amounts of money out of thin air. The Fed has expanded its balance sheet from about $900 billion one year ago to $1.9 trillion today.
Analysts now caution that Bernanke’s job is only half complete. Having used the Fed’s power to create vast amounts of new money, Bernanke will eventually have to reel all that money back. He has already laid out elements of the Fed’s “exit strategy”, but Fed officials have been careful to say it is still too early to pull back any time soon.
©2009/THE NEW YORK TIMES
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First Published: Thu, Aug 20 2009. 10 53 PM IST