Bernanke was a noted Princeton scholar on the causes of the Great Depression before George W. Bush named him to the Fed in 2002, then made him chairman four years later after a stint as chief White House economist. Following the celebrated Alan Greenspan, Bernanke was expected to keep a low profile and stay on the course set by his predecessor. He was seen as someone who wouldn’t rock the boat.
Then the financial crisis struck. Using authority no chairman had exercised before and acting beyond the reach of Congress, Bernanke has committed trillions of dollars to prop up financial institutions, lower mortgage rates, spur auto loans, extend consumer credit, and turn around the slumping housing market—steps that the Fed hopes will avert another Great Depression.
Even while operating as the most powerful Fed chairman in history, Bernanke has maintained a self-effacing manner. Colleagues describe him as the anti-Summers—modest, considerate, always seeking out the views of others. If the economy improves later this year, Bernanke’s supporters will argue that he deserves reappointment.
It’s not uncommon for Presidents to reappoint Fed chairmen from the other political party as a way to reinforce the central bank’s role as an agency independent of the executive branch. Ronald Reagan kept Paul Volcker, originally a Jimmy Carter choice, for a second term; Bill Clinton reappointed Greenspan, first picked by Reagan.
But an economic revival might not be enough to give Bernanke job security. Most likely, any upturn will be accompanied by rising unemployment because employers tend to keep cutting jobs even as the economy gets better. Summers’s own private forecast sees unemployment approaching—and possibly surpassing—10 percent into next year.
There’s also a political calculation for President Obama. The desire to have your own guy in charge of the economy when you’re running for reelection may be a big factor. It might be particularly so three years from now, when there’s a good chance the Fed will be raising interest rates to contain inflation. That’s never a popular move. The first President Bush, who reappointed Greenspan, wound up regretting his decision, feeling that Greenspan cost him reelection in 1992 by keeping rates too high.
Bernanke’s admirers believe he has done a heroic job. “He has been creative, aggressive, and thoughtful,” says a Fed colleague. “He deserves the gratitude of the country for all he has done—and he deserves reappointment. But I also understand the politics of this.”
So does Larry Summers. All he has to do is avoid making waves for a few more months and the Fed job could be his.
For Summers, that might be more challenging than nursing a sickly economy back to health.