federal reserve

Obama to reappoint Bernanke

Tuesday, Aug. 25
Posted 11 a.m. Eastern

President Barack Obama has decided to nominate Ben Bernanke to a second four-year term as chairman of the Federal Reserve Board. Regardless of whether you believe Bernanke deserves another term or not, resolving the uncertainty as to who will be at the helm of the Fed is a good thing and especially when done early, like in this case. (Bernanke's term doesn't expire until Jan. 31.)

The economy is still in a critical phase with the recession coming to an end but weak recovery prospects due to rising unemployment and anemic growth in household income are still in place. The Fed is also going to become increasingly relevant to the path of long-term interest rates as they wind down $300 billion in Treasury purchases and decide whether their 2010 purchases of Fannie and Freddie mortgage-backed securities will come anywhere close to the $1.25 trillion done this year.

Bernanke is still subject to Senate confirmation.

Keeping Bernanke as Fed chairman will allow the Fed to focus on the actual work of unwinding liquidity programs. Eventually the Fed will begin to raise short-term interest rates but we are still a long way from that. Whether or not they will ultimately have the fortitude to do so in the face of political pressure to keep rates low is a topic for another day.

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