President Obama briefly interrupted his week-long vacation Tuesday morning to renominate Ben Bernanke as chairman of the Federal Reserve, putting his faith in the man widely credited with helping to avert a global economic collapse.
Appearing briefly here in an open shirt and blazer, Obama said Bernanke "has led the Fed through one of the worst financial crises that this nation and this world have ever faced. 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. But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve."
Bernanke, similarly dressed in this summer resort, said the Fed has been challenged by unprecedented events during his tenure and has been "bold or deliberate as circumstances demanded."
Obama's decision to stick with the 55-year-old Bernanke is a sign he wants to stabilize financial markets and act in a bipartisan manner. Bernanke was appointed by President George W. Bush in 2005 to replace Alan Greenspan as Fed chief.
Bernanke's current four-year term expires in January, and Senate confirmation is needed.
The main contender for Bernanke's job, White House chief economic adviser Lawrence Summers, joined Treasury Secretary Timothy Geithner and White House chief of staff Rahm Emanuel in recommending that Obama renominate Bernanke, according to deputy press secretary Bill Burton.
When U.S. banks curtailed lending last year, Bernanke offered them huge emergency loans to shore up their balance sheets. Since then he presided over the purchase of more than a half trillion dollars in mortage portfolios.
Bernanke, a former Princeton professor and expert on the Great Depression, has said he took dramatic action to end the banking crisis and keep credit flowing because "I was not going to be the Federal Reserve chairman who presided over the second Great Depression."
Tuesday, Bernanke thanked Obama for his "unwavering support for a strong and independent Federal Reserve," which has been under attack from some legislators. He pledged "to help provide a solid foundation for growth and prosperity in an environment of price stability."
The Obama administration has proposed that the Fed take on an expanded role in policing financial risk-taking, but Congress has been cool to the idea. A majority of House members have signed on to a bill to force the Fed to undergo congressional review.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Bernanke's nomination is "probably the right choice." He said Bernanke "was too slow to act during the early stages of the foreclosure crisis, but he ultimately demonstrated effective leadership, and his reappointment sends the right signal to the markets."
In making today's announcement, Obama said, "We will pass the reforms necessary to protect consumers, investors and the entire financial system. And we will continue to maintain a strong and independent Federal Reserve."
Bernanke told Congress recently that he expects unemployment to peak later this year, voicing a more optimistic outlook than many economists. He reassured investors worried about inflation that the Fed will be able to reverse its cash-pumping actions to keep inflation in check.
Bernanke also has warned Congress that it must act promptly to close the federal budget deficit — something the Obama administration updated today.
While the deficit for 2009 is now projected to be lower than previously expected — at $1.58 trillion — the long-term picture doesn't look as bright, according to the White House budget office.
The total deficit from 2010 to 2019 is estimated to be $9.05 trillion, about $2 trillion more than what was projected in February, when Obama released his first budget outline.
The deficit for 2009 is projected to be smaller than previously forecast because the government doesn't expect to make any more payments to stabilize banks. The deficit in later years is larger than forecast because of "changes in economic assumptions" since February.
With the Bernanke announcement sure to at least temporarily overshadow the deficit news, Burton was asked why the announcement was made today. "There's been a lot of speculation out there, and the president wanted to put it to rest," he said. That would put Obama back into "vacation mode," he said.
Many on Wall Street and in academic circles believe that Bernanke is the best choice to lead the country into a sustainable recovery and would be in the best position to figure out when and how to reel in the trillions of dollars pumped into the economy to battle the crisis.
"Wall Street can rest a little easier now," said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. "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."
Bernanke, appearing last week at an annual Fed conference in Jackson Hole, Wyo., received heaps of praise from economists, academics and central bankers from around the world for his handling of the crisis. In sharp contrast, just a year earlier, as the financial crisis intensified, Bernanke was under siege because of the unprecedented actions he was taking.
In sticking with Bernanke, Obama is looking to reassure the financial sector and foreign central banks that his administration has no plans to change course.
Any move to replace Bernanke could have been perceived as injecting politics into the Fed, especially if Obama had turned to Summers, his top economic adviser, as Bernanke's replacement.
For Obama, there was little political downside in choosing to nominate Bernanke to a second four-year term. The move displays bipartisanship and a steady, unchanging hand on the economic tiller. Fully occupied with an attempted health care overhaul, Obama's team could little afford the distraction of changing the head of the Fed.