THERE’S a kneejerk quality to the political heave against US Federal Reserve Chairman Ben Bernanke. The Massachusetts returning officer had barely announced the election of Republican Scott Brown when two jittery Democratic senators were up to say they would vote in the Senate hearing against his renomination.
The markets reacted nervously on Friday, although endorsement by key figures from both parties over the weekend suggests that he should win the 60 votes needed. Yesterday, prices rallied on such assurances.
Mr Bernanke, a Republican economist who was named chairman by President Bush in 2005 and took over in 2006, and Mr Obama’s treasury secretary Tim Geithner, who does not face Senate hearings, have both become lightning rods for popular anger against Wall Street and the banks. They have been under fire from the left of the Democratic Party and from Republicans eager to take advantage of any difficulty faced by Mr Obama, although the party’s more reluctant leadership fears that any replacement would almost certainly come from Democratic ranks.
Although both men played a central, much praised role in putting together the banking bailout package last year, they are seen by the broader public as politically insensitive insiders who are too close to the very people who caused the crisis.
The Fed’s silence on the dangers of subprime lending, its regulatory failure before the crisis, and – not least – its involvement in the $182 billion bailout of New York-based insurer American International Group, are all being laid at Mr Bernanke’s door. Nor, critics say, has the Fed’s institutional complacency disappeared, both in its reluctance to embrace regulation or to pump-prime to create jobs. Mr Bernanke says his concern is not jobs but inflation. “It’s harsh but true to say that he’s acting as if it’s mission accomplished now that the big banks have been rescued,” writes economist Paul Krugman.
Mr Obama, under pressure to “go populist” in the wake of Massachusetts, has signalled a strengthening of his commitment to get tough on the banks and the message is likely to be similar in his State of the Union speech tomorrow. But even if he has doubts about Mr Bernanke’s approach, and the presidential message is somewhat different, he needs the latter’s renomination to reassure the markets about his administration’s financial prudence. Mr Bernanke will get his second term.