And President Obama had little choice but to nominate him. The Bernanke-led financial rescue is only half done.
Swapping a thoroughbred economist midstream for an unknown appointee would only invite concern in the markets. Much of the work that Mr. Bernanke has begun still needs to be finished – and with care.
As the president said Tuesday, the Fed chief has shown he has the background, temperament, courage, and creativity to try bold solutions. As a Republican nominated by the Republican George W. Bush, he has also shown he can sail past Washington's political shoals.
Still, the Senate should not give him a free pass. He needs to be pressed about the immense powers and influence that the Fed has gained as a result of the "great recession" of 2007-09. The central bank, supposedly an independent arm of government, has in effect become the fourth branch.
Most of all, senators should ask how Bernanke will avoid risky inflation. He needs to carefully pull trillions of dollars that he pumped into the economy for easy credit before all that money starts to create inflation, especially in certain markets. The last chairman of the central bank, Alan Greenspan, failed to curb the Fed's easing of credit in 2003-04, leading to the housing and credit bubble that crashed the economy in 2007.
Bernanke was part of the Greenspan team. The public needs more details on this reeling-in of loose dollars.
The Fed's primary tasks are to control the amount of money in the economy and to avoid inflation. But with each big economic crisis, politicians are prone to give more authority to the central bank, such as the ability to take over whole financial institutions that pose "systemic risk" – as the Fed already did with Citigroup and insurance giant AIG. With more regulatory powers, the Fed may run the risk of being pulled by competing interests and taking its eye off the essential fight against inflation.
Bernanke himself has injected the Fed directly into one political issue.
In March, he began buying up US Treasury bonds. The purchase of this kind of debt is a desperate way to keep interest rates low (it was last done during World War II). Why? It only enables Congress an easier way to finance a higher federal deficit – which puts future taxpayers in further hock. Voters have little way to hold the Fed accountable for its contribution to this rising red ink. The current estimate for the deficit in the coming decade is $9 trillion.
Finally, Americans have a tendency to see a Federal Reserve chairman as the great helmsman in rough economic seas. No one person should be reconfirmed for this post without a thorough sifting of past mistakes and potential actions. Presidential and congressional candidates receive a grilling on the stump and in the media. Bernanke needs to come out of the Fed's marble halls and also sit in the spotlight of public scrutiny.