Four More Years

President Barack Obama announced Tuesday that he will nominate Federal Reserve Chairman Ben Bernanke to a second four-year term.

"The man next to me, Ben Bernanke, has led the Fed through the one of the worst financial crises that this nation and this world have ever faced," said Obama, who is on vacation with his family on Martha's Vineyard, Mass.

"As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve."

The announcement ends months of speculation over whether the administration would replace Bernanke when the Bush appointee's first term ends in January 2010. Although Bernanke's reappointment needs to be confirmed by the U.S. Senate--a virtual certainty--the news sends a positive signal to markets that someone who understands the financial crisis intimately will be in control of the central bank for the foreseeable future. U.S. stock markets were expected to rise on the news.

Although it's slightly surprising that the president interrupted his vacation to make the announcement, the news itself doesn't entirely come as a shock. As recently as June, Obama praised Bernanke's performance as Fed chairman, even while acknowledging that the central bank could have been more aggressive in preventing system-wide risk to the economy.

In nominating Bernanke for a second term, the president is sending two messages: First, that the crisis is certainly not over, even though the economy has shown signs of recovery in recent weeks. Second, that he wants a steady hand at the tiller while the waters are still treacherous. A former Princeton professor, Bernanke has a deep knowledge of financial crises. More importantly, he knows the current crisis better than perhaps anyone in government, having held the Fed's top position since 2006.

In March 2008, Bernanke was instrumental in brokering JPMorgan Chase 's purchase of foundering investment bank Bear Stearns. Last September, he and then-Treasury Secretary Henry Paulson urgently warned Congress that the economy could collapse if large financial institutions were allowed to fail. Less than three weeks later, lawmakers approved $700 billion in bailout funding. Since then, Bernanke has presided over a Federal Reserve that has rewritten the books for how a central bank should respond to a financial crisis. In addition to dropping its interest rate target to virtually zero percent, the Fed has expanded its balance sheet to more than $2 trillion as it has conceived new ways to flood the economy with money, such as providing emergency lending to banks, bolstering consumer lending and buying U.S. Treasury securities.

Within the last year, Bernanke has at times been the object of scathing criticism during his appearances on Capitol Hill. Critics have excoriated him for allowing Lehman Brothers to fail, an event that sent the economy into a tailspin. They have lambasted him for permitting American International Group , a major bailout recipient, to award its employees with bonuses even as the firm survived on taxpayer money. Recently, a congressional panel took Bernanke and Paulson to task for allegedly bullying Bank of America boss Ken Lewis into going forward with a merger with the tottering Merrill Lynch. (Paulson eventually took the rap).

Nonetheless, Bernanke, who never loses his temper, at least publicly, has retained the support of many economists and Wall Street. Contrast his steady manner with the volatility of Larry Summers--a brilliant economist, former Treasury Secretary and currently Obama's top economic adviser--who was considered a top candidate for the Fed job, if the president didn't renominate Bernanke. Given the uncertainty in the economy as the U.S. slowly pulls its way out of the Great Recession, it's easy to see why the president chose to stick with Bernanke.

Christopher Dodd, Chairman of the Senate Banking Committee, said in a statement, "Chairman Bernanke was too slow to act during the early stages of the foreclosure crisis, but he ultimately demonstrated effective leadership and his reappointment sends the right signal to the markets."

In the coming months, Bernanke will retain his high profile on Capitol Hill. Congress is in the process of writing legislation to overhaul the financial regulatory system. Some critics have said the administration's proposals would give the Fed too much power and perhaps overstretch the abilities of the central bank. Some have argued that the Fed should lose some of its regulatory power because it has failed to protect consumers adequately. Dodd and others support the creation of an independent consumer financial protection agency. No agency likes to lose its authority, and the Fed is no exception.