Five questions for Ben Bernanke
The Senate is likely to confirm him, but not without asking things like 'How soon will you raise interest rates?'
It’s likely that Ben Bernanke will win Senate approval for a second term as chairman of the US Federal Reserve. Even his critics admit that. Financial markets might swoon if they thought their mild-mannered hero – who arguably helped stave off a depression last fall – was about to get the boot.Skip to next paragraph
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But that doesn’t mean he won’t get asked some hard questions at his confirmation hearing. The Fed’s semi-autonomous role in American economic life is always a matter of deep interest on Capitol Hill. Plus, Senators are sure to want to question him about the legality, depth, and wisdom of everything from the federal government’s bank bailout to its investments in GM and Chrysler.
So, yes, the Fed chief passed one test by winning President Obama’s nod for renomination. The second test awaits.
Here are five topics that Senators are likely to touch upon:
WHEN ARE YOU GOING TO TAKE AWAY THE PUNCHBOWL? Since financial markets turned shaky last year, the Fed has pumped massive amounts of liquidity -- i.e., cash -- into the economy, via such efforts as the bank bailouts (otherwise known as the Troubled Asset Relief Program), backing of securitized consumer loans, and continued aggressive reduction of interest rates. It’s been an unprecedented infusion that helped keep world commerce going. But at some point, it has to end.
Legendary Fed chief William McChesney Martin once said that the job of his institution was “to take away the punchbowl just as the party gets going” -- in other words, to raise interest rates when recovery begins.
Some Senators worry that Bernanke will take away the punchbowl too early, before recovery really sets in. Others worry he will do it too late, allowing inflation to start gaining power.
HOW MUCH OF ALL THIS WAS YOUR FAULT? Bernanke succeeded Alan Greenspan in February, 2006. Like Greenspan, Bernanke did little to curb the asset bubbles, notably rising real estate prices, that are now thought to have helped lead to last year’s crisis.
Sure, Bernanke moved very aggressively to exert government power and use all the tools at his disposal once the crisis began. Wouldn’t a little nudge in 2007 have prevented all those late nights with Treasury Secretary Henry Paulson in 2008?