Jackson: Ben Bernanke began as Federal Reserve chairman by meekly promising to maintain the status quo. He ended up facing the worst downturn since the Great Depression and changing central banking in ways that will reverberate for decades.
Bernanke took office promising to follow in the footsteps of his storied predecessor, Alan Greenspan, and to bring greater transparency to a historically secretive institution.
But as a devastating financial crisis hit, he went on to deploy daring policy maneuvers never before attempted by central bankers in what seems to have been a successful effort to tame the credit market meltdown.
While a participant in the hands-off regulatory consensus that prevailed before the crisis, his imaginative thinking during the financial break-down and painful recession that followed earned him a respect that makes President Barack Obama’s decision to renominate him seem unsurprising.
“Given the challenges still ahead, we need a chairman who has the experience and the demonstrated good judgment and leadership to navigate the economy to a sustained recovery and then to smoothly make an exit from the Fed’s extraordinary ... policies,” former Fed Governor Laurence Meyer said.
Criticized for initially being slow to acknowledge and react to the crisis, the Fed began an aggressive series of actions in the summer of 2007. By the end of 2008, the Fed had cut benchmark overnight interest rates to near zero for the first time in the central bank’s modern history.
In addition, Bernanke threw open emergency lending programs to financial firms beyond depository banks to bolster other financial firms that were critical to the flows of money in the economy. He opened currency swap lines with central banks around the world to ease bottlenecks for banks overseas trying to access U.S. dollars in global markets.
Bernanke also showed his mastery of monetary policy tricks by opening a dizzying array of lending and other programs to give life support to small business, consumers, and housing markets.
But Bernanke’s chairmanship so far may best be defined by the emergency bailouts of investment bank Bear Stearns and insurer American International Group, the decision to let Wall Street icon Lehman Brothers fail, which fueled a vicious slump in global markets, and his pressure on Congress to write a $700 billion blank check to the Treasury Department to stave off economic meltdown.
Bernanke has faced gale-force blowback from Congress and other critics over those actions, many of which were midnight decisions taken only with a handful of trusted advisers in chaotic situations.
So withering has some of the criticism been that some believed that a second Bernanke term would be a tough political sell for Obama.
But, taking his transparency pledge farther than anyone could have expected, Bernanke has made his case to the public in ways rarely attempted by anyone at the helm of the US central bank, giving interviews on television, writing opinion pieces in newspapers and taking questions from the press.
Bernanke will face tough questioning when he appears before the Senate Banking Commission, which will consider his renomination before sending it to the full Senate for a final confirmation vote.
The chairman of that committee, Connecticut Democrat Christopher Dodd, and the top Republican, Richard Shelby of Alabama, have criticized the Obama administration’s proposal to give the Fed greater power to set rules and oversee financial system risks.
Bernanke will also be closely watched by financial markets who want details on the Fed’s plans to eventually dismantle or “exit” its emergency measures. Some critics fear all the cash pumped into the US system could trigger inflation.
What may have tipped the balance in Bernanke’s favor for Obama, and what may see him through his Senate confirmation, is mounting evidence the Fed’s aggressive actions may be paying off with a recovering economy.
Bernanke was plucked from Princeton University by President George W. Bush to fill a vacancy on the Fed’s board in 2002. His only prior political experience was on a local school board.
After a later stint on the White House Council of Economic Advisers, Bush picked Bernanke to succeed Greenspan, who had won lavish praise during his lengthy tenure for overseeing the longest economic expansion in US history.
Bernanke pledged to bring greater transparency to the Fed, the “temple” in a marble edifice that controls the economy by manipulating monetary policy levers few understood.
Following in the footsteps of the famously opaque Greenspan, Bernanke’s plain talk was refreshing. Still, a push to establish a set target for inflation at the central bank — a centerpiece of Bernanke’s transparency effort — was abandoned in the face of political opposition.