Bernanke fights for a second term at the Fed

A make-or-break Congress hearing awaits the battling chairman. Stephen Foley reports

There's a lot of job insecurity about in the current economic climate, and more than a few people are having to reapply for their own jobs. No one, though, is having to go through such a long and public interview process as the chairman of the Federal Reserve. Each day brings a new, gruelling round of questioning and performance appraisal. Today might just be the make-or-break day for Ben Bernanke's bid to be reappointed for a second term, when his first runs out in January.

Barack Obama, who will make the final call, most likely in the autumn, said on Tuesday that Mr Bernanke was doing, "a fine job under very difficult circumstances" but gave no clue on his thinking about the future. Lurking behind the questions, are briefings before the President's inauguration that Mr Obama was planning to appoint Larry Summers, his chief economic adviser, when the Fed post became vacant. Mr Summers, a former Treasury Secretary and renowned as much for his abrasive style as for his economic prowess, has made no secret of wanting the job.

And today? This is when Mr Bernanke makes his trickiest appearance yet before Congress, at a hearing into the disputed events of last December, when the Fed chairman and the then-Treasury Secretary Hank Paulson persuaded – some prefer the term bullied – Bank of America to go through with its acquisition of Merrill Lynch.

Expect the members of the House oversight committee to give Mr Bern-anke a grilling, since Congress is already very concerned about the growing power of the Fed and the question of whether it is becoming a tool of Treasury policy – something it fears could be exacerbated by proposals to give it extra regulatory control over the "too big to fail" financial institutions. The committee has subpoenaed the Fed's emails from December and catching Mr Bernanke in any mis-statements could be curtains for his reappointment, but so far the emails have not shown the chairman stepped outside his authority.

Ken Lewis, BofA's chief executive, did Mr Bernanke a favour at his own grilling two weeks ago, saying all sides acted out of the best of motives and he would not claim to have been "forced" to do the Merrill deal.

The wider debate now is about whether Mr Bernanke, the foremost scholar of the Great Depression, has acquitted himself well as Fed chairman during the greatest financial crisis since the 1930s. It was the talk of the Thomson Reuters investment summit last week, for example, when Nouriel Roubini, the bearish New York University professor, gave Mr Bernanke a B+ grade. At the summit, and beyond, the consensus appears to be: Mr Bernanke may not have seen it coming, but thank goodness he knew what to do when it did.

"They said the housing slump was a minor slump, then they argued the bust of housing would have no other effect on the economy, so early on, they got it totally wrong," Mr Roubini said. "But when the stuff hit the fan in August of 2007, then they aggressively started to make a wide range of conventional and unconventional monetary policy options. And on that one, I'll give him credit, that they've been very creative and very aggressive – maybe even too aggressive."

Kim Rupert, at Action Economics, puts Mr Bernanke's chances of reappointment at 60-40 in favour, and says that the odds get better for him with every day the economy improves. "If we get a decent little pick-up in growth, it will be harder for the administration to discredit Mr Bernanke and to not reappoint him, even if they had a phenomenal new pick on the horizon," she said.

And that last point is important, because with each passing day, the Larry Summers trial balloon, sent up at the start of the year, is turning to lead. If Mr Bernanke is having trouble on the Hill, imagine how much worse it would be for the abrasive Mr Summers, whose confirmation hearings would have to open up his departure as president of Harvard University, when he was hounded out over allegedly sexist comments. Amid concerns that the Fed is becoming too closely associated with the Treasury, putting Mr Obama's economics tsar in charge would be a red rag.

Alternative candidates, such as Christine Romer, another White House aide, or the regional Fed governor Kevin Warsh, are not yet seen as having the heft for the job.

If Mr Bernanke gets through today without a gaffe, he could be through to the final round of interviews – with no rivals.