Big stakes in Bernanke’s reappointment

Marketplace Staff Aug 21, 2009

Big stakes in Bernanke’s reappointment

Marketplace Staff Aug 21, 2009


Steve Chiotakis: Of course Bernanke’s been in the spotlight since President George W. Bush
tapped him to lead the Fed four years ago. He still has more than five months left in his term. And whether he should be reappointed is a question President Barack Obama and his economic advisers have been thinking about for some time. Former Labor Secretary and University of California, Berkeley professor Robert Reich joins us this morning to talk about the process and what it could mean for our nation’s economy. Mr. Secretary, good morning.

Robert Reich: Hi Steve.

Chiotakis: Ben Bernanke’s term doesn’t end til January, so why are we hearing about this debate now?

Reich: That’s a good question. I think mainly because financial markets hate uncertainty. And the longer the president waits, the more uncertainty there’s going to be. Also, now that the economy is showing faint signs of bottoming out, more attention is going to be paid to the Fed’s exit strategy. You know, the when and how it withdraws all that credit medicine. And the president will want to get beyond the issue of Bernanke’s appointment so nobody thinks the timing of the exit is influenced by politics.

Chiotakis: OK Bob, I get it. It’s a big deal for the president, but it’s also a big deal for the economy, right?

Reich: Oh, you bet. And besides everything else, decisions by the Fed next year in particular, could very well affect the mid-term elections. I mean if the Fed acts too soon raising interest rates and pulling in credit — and the economy tanks again — that’s going to be very, very tough for the Democrats. If the Fed is too late, we could face a tidal wave of inflation.

Chiotakis: And a lot of people, Bob, think he’s controversial. Why is that?

Reich: Look, no Fed chair has done what he has done. I mean the rescues of Bear Stearns and AIG, letting Lehman go down, buying mortgage-backed securities from Fannie and Freddie. I mean he has turned the Fed into a kind of alternative U.S. bank. And all this activism has earned him a lot of enemies. So reappointment of Ben Bernanke is hardly a sure bet.

Chiotakis: Well let’s talk about that then, Bob. I mean peer into your crystal ball. Will Bernanke be reappointed?

Reich: Ah. Well, if you’d asked me a few months ago, I would’ve said no. But now that the economy is showing some signs of life, Bernake’s star is rising again.

Chiotakis: And when will the president act on this, do you think?

Reich: I would expect fairly soon. The president has enough on his plate this fall that he wants to get this out of the way.

Chiotakis: All right. Former Labor Secretary Robert Reich. Professor of public policy at U.C. Berkeley. Bob thanks.

Reich: Thank Steve.

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