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US President Barack Obama said US Federal Reserve Chairman Ben S Bernanke has stayed in his post “longer than he wanted,” one of the clearest signals the central bank chief will leave when his current term expires next year.
“Ben Bernanke’s done an outstanding job,” Obama said in an interview with Charlie Rose that aired yesterday on PBS, when asked about nominating him for another term subject to Senate approval. “He’s already stayed a lot longer than he wanted or he was supposed to.”
Obama likened Bernanke’s tenure to that of outgoing Federal Bureau of Investigation Director Robert Mueller, who stayed on for two years after his term expired in 2011 and is leaving his post in September. Bernanke’s second four-year stint at the central bank ends January 31.
Bernanke, like Mueller, was initially nominated to the post by former President George W Bush. Obama asked Bernanke to serve another term as chairman, which he began on February 1, 2010. The 59-year-old former Princeton University professor and Great Depression scholar also served on Bush’s Council of Economic Advisors.
Fed spokeswoman Michelle Smith declined to comment. A White House official declined to comment until the president has made a decision and is ready to announce it, adding that Obama’s remarks were intended to express admiration for Bernanke.
Tapering debate
Treasuries were little changed after the news, which came on the eve of a two-day meeting of the Fed’s policy-setting Open Market Committee. Yields on benchmark 10-year notes were little changed at 2.18 per cent at 12:54 pm in New York. Fed officials in recent months have debated whether to scale back, or taper, their purchases of Treasuries as the US economy extends its recovery.
“It’s really hard to believe the next chairman would change the course of monetary policy,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former economist for the Fed’s division of monetary affairs. At the same time, “it doesn’t help make the Fed’s communications easier if Obama is talking about Bernanke in the past tense,” he said.
Using extraordinary powers, Bernanke took the assets of troubled financial firms Bear Stearns Cos and American International Group Inc. onto the Fed’s balance sheet and rolled out several emergency lending facilities to pump cash into a banking system where confidence had been shattered by the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.
Recession damage
The 18-month recession was the longest and deepest since the Great Depression, and the Standard & Poor’s 500 Index reached a 12-year low in March 2009. Joblessness peaked at a quarter-century high of 10 per cent in October 2009. By March 2010, 10.1 per cent of all mortgage loans were delinquent, according to data from the Mortgage Bankers Association.
“He has been an outstanding partner along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said in the interview.
Bernanke’s actions attracted the ire of Republicans. After a protracted debate, the Senate approved the second-term nomination on January 28, 2010, by a 70-30 vote, the narrowest margin for any Fed chairman.
In August 2011, Texas Governor Rick Perry said it would be “almost treacherous — or treasonous” for Bernanke to step up central bank support for the economy before the 2012 presidential election. Perry was contending for the Republican presidential nomination at the time.
Romney opposed
Mitt Romney, the Republicans’ eventual nominee, said during the campaign that he opposed a third term at the Fed for Bernanke. The former Massachusetts governor criticised Bernanke for printing too much money without reducing unemployment.
While neither the White House nor Bernanke have said definitively that the Fed chairman won’t seek a third term, there have been some signals that the chairman would like to leave.
Bernanke broke with tradition and decided not to attend the Fed’s annual central banking conference in Jackson Hole, Wyoming, this year.
“The odds of Bernanke staying on were pretty low,” said Michael Feroli, chief US economist for JPMorgan Chase & Co in New York. “This will confirm one aspect of the story and allow people to think of the other scenarios — somebody else will be taking the helm.”
Bernanke told reporters in March that he’s “spoken to the President a bit” about his future and felt no personal responsibility to stay at the Fed and oversee the reversal of its policies.
Other options
“I don’t think that I’m the only person in the world who can manage the exit,” Bernanke said at the March news conference in Washington.
As the financial crisis waned and the emergency lending programmes were wound down, the Fed chairman faced a new challenge: A recovery hobbled by tight credit, a lacklustre housing market and financial turmoil in Europe that left the unemployment rate at 9.1 per cent two years after the expansion began.
With the central bank’s benchmark lending rate cut close to zero in December 2008, the Fed chairman began once again to marshal the central bank’s balance sheet. This time, the FOMC began to press down longer-term interest rates with direct purchases of debt.
The strategy, called quantitative easing by economists, is now in its third round with the Fed purchasing $85 billion a month in Treasury and mortgage-backed securities. The Fed’s assets now total $3.41 trillion compared with $877 billion at the end of August 2007.
Influencing economics
“He has bridged the gap between academic analyses of monetary policy and the practical requirements of a running a central bank,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “He is in a unique position to redefine the way we think analytically about how monetary policy operates in the real world and to do it in a way that other academics will have to pay attention to.”
Still, the Fed is far from its congressional mandate to achieve maximum employment and stable prices.
Inflation rose 0.7 per cent for the 12 months ending April, below the 2 per cent goal of the FOMC. The unemployment rate stood at 7.6 per cent in May, compared with the Fed’s 5.2 per cent to 6 per cent estimate of a jobless rate that corresponds to efficient use of labour resources.
Global poll
A majority of investors expect Bernanke will leave office in January, according to the latest Bloomberg Global Poll of investors on May 14. A third of those surveyed expect he’ll be succeeded by Fed Vice-Chairman Janet Yellen, 66, according to the poll of investors, analysts and traders who are Bloomberg subscribers.
Investors were more divided over who would be the best successor. Asked who would make the best Fed chairman, Yellen was named by 26 per cent, followed by former Treasury Secretary Timothy F Geithner, 51, favoured by 11 per cent, and Bank of Israel Governor Stanley Fischer, 69, a Bernanke mentor, with 7 per cent. Former White House adviser and ex-Treasury Secretary Lawrence Summers, 58, was selected by 6 per cent, and 3 per cent named former Fed Vice-Chairman Roger Ferguson, 61.
“At some point you have to make a transition,” Feroli said, noting that there has never been an ideal time to announce a transition “in the past five years”.
