WASHINGTON — Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank's power in its 95-year history to battle the worst economic slump since the 1930s, will be nominated to a second term by President Barack Obama, said David Axelrod, Obama's senior adviser.
Obama will make the announcement today on Martha's Vineyard, Massachusetts, where he is vacationing with his family, and Bernanke is expected to join him, Axelrod said. The nomination requires Senate approval. Bernanke's four-year term as chairman expires Jan. 31.
"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and outside-the-box thinking that has helped put the brakes on our economic free fall," Obama said in prepared remarks obtained by the Associated Press.
"The actions we have taken to stabilize our financial system, repair our credit markets, restructure auto industry and help the overall economy recover have all been steps of necessity, not choice. They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, all of these steps have brought our economy back from the brink. They are steps that are working," the statement says.
Bernanke, 55, was appointed Fed chairman by President George W. Bush and sworn in Feb. 1, 2006.
He was a chairman of the President's Council of Economic Advisers and a member of the Board of Governors of the Federal Reserve System during the Bush administration. He joined Princeton University as an economics professor in 1985 and was chairman of Princeton's Economics Department from 1996-2002.
He earned a bachelor's degree in economics in 1975 from Harvard University and a doctorate in economics in 1979 from The Massachusetts Institute of Technology.
Bernanke slashed the main interest rate almost to zero, pumped $1 trillion into the banking system and led rescues of Bear Stearns Cos. and American International Group Inc. He now must guide the world's largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed's balance sheet to prevent a surge in inflation.
"Wall Street can rest a little easier," said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk. "
Obama, a Democrat, continues a recent tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.
Bernanke's predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three presidents, including Bill Clinton, a Democrat. President Ronald Reagan kept Paul Volcker, first selected by Jimmy Carter, for a second term.
The Fed chief faces threats to the central bank's independence from members of Congress who say he overstepped his authority as he battled a crisis that froze credit markets and led to $1.6 trillion of write-downs and losses at financial firms. Bernanke was criticized as too slow to respond to the housing slump and for calling the crisis "contained" before reversing course in August 2007 and cutting interest rates.
Legislation in the House would subject the Fed's monetary policy to audits by the Government Accountability Office, a change Bernanke opposes. Under a regulatory overhaul proposed by the Obama administration, the Fed would need the Treasury Department's approval before invoking emergency powers used in bailouts and loans to non-bank financial institutions.
Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favorable view of the chairman in July. By almost a 3-to-1 ratio, they said Bernanke had earned another four-year term.
Information for this article was contributed by Julianna Goldman, Michael McKee, Peter Cook, Alison Sider, Scott Lanman, Craig Torres, Vivien Lou Chen, Kathleen Hays, Elizabeth Gould, Thomas Keene and Simon Kennedy of Bloomberg News and by Philip Elliott of The Associated Press.
Front Section, Pages 8 on 08/25/2009