Bernanke's Enigma
By Stephen Smith
February 4th, 2010
In my previous Market Insights, “The Fed Update,” I stated that Ben Bernanke would be confirmed by the Senate but would receive more no votes than Paul Volker’s 16 in 1983, but I didn’t expect the Senate to delay his vote. Why the delay? After the Republicans won the Senate seat in Massachusetts, opposition to his reconfirmation started growing with a mix of Democrats and Republicans being angry over the Fed’s role in bailing out Wall Street firms. They also blame Bernanke for failing to detect and address the housing bubble that led to the crisis.
Ben Bernanke became chairman of the Federal Reserve Board in January of 2006. As chairman, he leads a board of seven governors of the Federal Reserve System which sets national monetary policy and serves as the central bank of the United States. Bernanke grew up in South Carolina and earned a bachelor's degree in economics from Harvard in 1975, and a PhD in economics from the Massachusetts Institute of Technology in 1979. He was a professor of economics at Stanford University from 1979 until 1985, when he moved to Princeton. Throughout the 1980s and 1990s, he became increasingly involved in the Federal Reserve System, serving as a visiting scholar and academic advisor to several regional reserve banks. He remained at Princeton until 2002, when he left to become a Federal Reserve governor. In June of 2005, he was appointed by George W. Bush to be Chairman of the President's Council of Economic Advisers.
As you may know, the Senate finally reconfirmed Ben Bernanke as the Federal Reserve Chairman. Voting for the chairman were 47 Democrats, 22 Republicans, and 1 Independent. The chairman received the most no votes ever with 11 Democrats, 18 Republicans, and 1 Independent voting against his reconfirmation.
Under the Fed Chairman’s leadership, recovery from the worst recession since the 1930s is under way, helped by the enormous government stimulus programs. But some questions remain whether the recovery can last once those supports are pulled. The unemployment rate at ten percent is likely to remain high and be a drag on the economy. Also, lending is still not back to normal and banks are still failing. Against this backdrop, Bernanke and his colleagues need to tread delicately, reeling in the stimulus too soon risks short circuiting the recovery, but moving too slowly increases the risk that inflation could be unleashed. We are encouraged by his reconfirmation as chairman. Given his education, background and work experience, his expertise is needed to guide the markets through this complex economic riddle.
