Obama nominates Fed chairman for second term

Federal Reserve chairman Ben Bernanke, who led the biggest expansion of the central bank's power in its 95-year history to battle the worst economic slump since the 1930s, will be nominated to a second term by President Barack Obama, said David Axelrod, Obama's senior adviser.

Obama will make the announcement today on Martha's Vineyard, Massachusetts, where he is holidaying with his family, and Bernanke is expected to join him, Axelrod said. The nomination requires Senate approval. Bernanke's four-year term as chairman expires on January 31.

"The President believes that Bernanke has provided extraordinary leadership during the most difficult financial crisis we've faced since the Great Depression," Axelrod said.

"As we build our economy that leadership is still needed."

Bernanke, 55, slashed the main interest rate almost to zero, pumped US$1 trillion ($1.46 trillion) into the banking system and led rescues of Bear Stearns and American International Group.

He now must guide the world's largest economy back to growth and reduce unemployment approaching 10 per cent while shrinking the Fed's balance sheet to prevent a surge in inflation.

"Wall St can rest a little easier," said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk."

Obama, a Democrat, continues a tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.

Bernanke's predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three Presidents, including Bill Clinton, a Democrat.

The Fed chief faces threats to the central bank's independence from members of Congress who say he overstepped his authority as he battled a crisis that froze credit markets and led to US$1.6 trillion of writedowns and losses at financial firms. Bernanke was criticised as too slow to respond to the housing slump and for calling the crisis "contained" before reversing course in August 2007 and cutting interest rates.

Legislation in the House would subject the Fed's monetary policy to audits by the Government Accountability Office, a change Bernanke opposes. Under a regulatory overhaul proposed by the Obama Administration, the Fed would need the Treasury Department's approval before invoking emergency powers used in bailouts and loans to non-bank financial institutions.

"It's easy with hindsight to say he wasn't perfect, he should have moved faster," Laurence Meyer, vice-chairman of Macroeconomic Advisers and a former Fed Governor, said in Jackson Hole, Wyoming, where Bernanke and other central bankers gathered for an annual retreat.

"Once he did recognise the crisis, he moved extremely aggressively, very creatively and I think you have to take a step back and say that the efforts and the leadership he gave brought the economy back from the edge of the abyss," Meyer said.

Almost 75 per cent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favourable view of the chairman in July. By almost a three-to-one margin, they said Bernanke had earned another four-year term.

The Standard & Poor's 500 Index has risen 52 per cent since a recession low on March 9. The S&P lost 38.5 per cent last year.

- BLOOMBERG