Washington: The US Senate on Thursday backed Ben Bernanke for a second four-year term running the Federal Reserve, the world’s most powerful central bank, despite deep misgivings over his perceived policy missteps.
Bernanke survived a revolt by lawmakers angry at big banks and their regulators, including the Fed. He still faces acute political pressure to ease economic strains at a time when the US central bank is showing divisions over how much support the economy needs.
US President Barack Obama welcomed the Senate vote and said he looked forward to working with Bernanke going forward.
“As the nation continues to face the consequences of the worst recession in a generation, Ben Bernanke has provided wisdom and steady leadership in the midst of the financial and economic crisis,” Obama said in a statement.
Senators credited Bernanke with steering the economy through a wrenching financial crisis but leveled withering criticism at him. They said his policies sowed the seeds of the turmoil and he initially showed a slow response to the crisis.
“Bernanke fiddled while our markets burned,” said Senator Richard Shelby, the top Republican on the Senate Banking Committee.
The surprise election last week of a Republican to a Massachusetts US Senate seat long held by Democrats underscored the voter anger over Wall Street bank bailouts and the weak economy, undercutting support for Bernanke.
For a while his confirmation appeared in doubt, rattling global financial markets.
Obama and Senate allies pressed senators over the past week to muster the 60 vote super-majority needed to overcome efforts to block Bernanke’s nomination.
In the end, the Senate voted 70-30 to confirm Bernanke, the stiffest opposition to any nominee for Fed chairman in the nearly 32 years the Senate has voted on the position. Paul Volcker, who engineered two recessions with sky-high interest rates to break inflation, was confirmed 84-16 in 1983.
“The politically neutral and independent Fed has really been politicized this week, probably to its detriment,” said Chris Krueger of Concept Capital, a private firm that tracks Washington for institutional investors.
Many lawmakers who ended up supporting Bernanke said they were swayed by the ingenious approaches the Fed chief used to avert a deeper economic breakdown and said maintaining continuity would help sustain a fragile recovery from the deepest recession since the Great Depression.
“Chairman Bernanke’s performance in addressing the economic crisis and his current efforts to significantly enhance financial regulation to help prevent future crises outweigh his past mistakes,” said Senator Carl Levin, a Michigan Democrat.
Reflecting the public frustration at bank bailouts, Democratic Senator Sheldon Whitehouse said it was time to “pivot from the necessary rescue of our major financial institutions to the equally if not more necessary help to Americas families.”
Bernanke, whose first term as Fed chief expires on Sunday, will lead a central bank that has been reshaped by financial crisis, a recession and the shifting politics that ensued.
His biggest task in coming months will be to decide when and how to dismantle or “exit” emergency measures that he helped put in place to support the economy and financial markets, without stunting a fragile recovery.
After a two-day meeting, the Fed on Wednesday repeated its vow to keep interest rates “exceptionally low” for “an extended period.” But Kansas City Federal Reserve Bank President Thomas Hoenig dissented, arguing it was time to drop that pledge.
It was the first policy dissent since January 2009 and showed growing tensions on how the Fed should move forward. Bernanke may find it increasingly difficult to forge a consensus behind keeping rates low as a recovery builds.
Public outrage over the recession and expensive bank bailouts is dominating Washington politics ahead of congressional mid-term elections in November.
That anger could translate into new moves in Congress to strip the Fed of its direct supervisory power over banks or its responsibility for protecting consumers.
Congress might also demand greater transparency on Fed emergency lending programs, and could decide to open up monetary policy decisions for review.
Financial markets breathed a sigh of relief that Bernanke’s confirmation takes away some of the political leverage Congress had over the Fed.
Many investors, particularly foreign investors, may have worried Bernanke’s confirmation difficulties heralded greater political interference in central bank decisions, said Dan Fuss a vice chairman at Loomis Sayles in Boston.