Bernanke Clears First Hurdle

Federal Reserve Chairman Ben Bernanke cleared the first hurdle on his way to another four-year term when the Senate Banking Committee approved his nomination today with a 16-7 vote.

The full Senate is expected to vote on his nomination in January. It must confirm him before January 30, or Bernanke can’t serve as chairman.

With the exception of Senator Jeff Merkley, Democrat from Oregon, all of the senators who opposed Bernanke’s nomination were Republicans. But Bernanke will face additional opposition from the left in the full Senate, where Vermont Senator Bernie Sanders will try to block his confirmation.

“Bernanke failed on his job,” Sanders said. “Why would you want to reappoint somebody for that enormously important position with that kind of poor track record?”

Sanders’ rap on Bernanke is that he puts Wall Street ahead of Main Street, which is Merkley’s problem with Bernanke as well.

The Republicans who opposed Bernanke contended the Fed’s easy-money policies led to the housing bubble and subprime-mortgage debacle. They also accused Bernanke of missing clear warning signs that the financial system was about to collapse.

Bernanke “presided over one of the biggest economic catastrophes we’ve had as a country,” said Senator Jim DeMint, a South Carolina Republican.

Virgina Democratic Senator Mark Warner said the catastrophe would have been much worse were it not for Bernanke’s actions to prevent a total collapse of the banking system.

Warner said it was “extraordinary” to hear the “finger-pointing” directed by Republicans at Bernanke and the Democratic Congress, “as if one individual or one entity or one political party was responsible for the 20-year overleveraging of our economy.”

“I think there were no clean hands,” said Warner, a former venture capitalist who also served as governor of Virginia.

Senator Judd Gregg, Republican from New Hampshire, agreed that Bernanke—as well as Congress and bankers—made mistakes, but the Fed chairman’s actions to reliquify capital markets worked. Going forward, the challenge is to “get that liquidity out of the market” so that it doesn’t cause inflation, he said. Bernanke is “on the right track there,” he said.

For now, the Fed expects “subdued inflation,” according to the statement it released Wednesday, when it announced it would maintain the federal funds rate near zero “for an extended period.”

But at some point, the Fed will have to raise interest rates to avoid inflation. That probably will occur in the second half of 2010, said Marty Regalia, chief economist for the U.S. Chamber of Commerce.

“When they do it, it’s going to be big news,” Regalia said.

It won’t make President Barack Obama happy. The Obama administration “desperately needs” more rapid economic growth in order to generate more tax revenue, Regalia said. It “wouldn’t be too upset” if prices go up a bit, he said.

The unemployment rate likely will start coming down by next November, when congressional elections occur, but it will remain high, Regalia predicts. It’s “going to take a number of years” to recover the 7.3 million jobs that were lost during this recession, Regalia said.

If the Fed raises interest rates while millions of Americans remain jobless, congressional Democrats will be tempted to blame Bernanke for the unemployment problem.

Even though the Fed is supposed to be independent of politics, these kind of attacks come with the territory. Fortunately for Bernanke, his contentious confirmation process will make his skin tougher.

Plus, if he gets too down, he can always pull out Time magazine’s year-end issue and look at the cover featuring him as Person of the Year.

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Kent Hoover is the Washington bureau chief for bizjournals.