Lawmakers Are Watching Fed Chairman Closely
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WASHINGTON — With Ben Bernanke nearing the midway point of his term as Federal Reserve chairman, lawmakers on Capitol Hill say they will be watching closely how he steers monetary policy through a critical juncture for the American economy over the next several months.
Mr. Bernanke, a former Princeton University economist who took office in February 2006, has earned a measure of qualified support from members of key congressional finance committees as the Fed responds to the fallout from the subprime mortgage crisis. In interviews over the past week, lawmakers praised the chairman’s recent efforts to increase transparency at the Fed. They also welcomed the board’s moves to lower interest rates twice over the summer in response to credit woes. Another rate cut is expected at the Fed’s meeting next week, which would be the third this year.
Yet as uncertainly grips Wall Street, lawmakers said they had not reached a verdict on Mr. Bernanke’s tenure and that his performance during the first half of 2008 could determine whether the next president feels pressure to replace him when his term expires in early 2010.
Some have criticized him for not lowering interest rates fast enough while others, like Rep. Ron Paul of Texas, have railed against the Fed for allowing the dollar to weaken.
“I wouldn’t want his job,” the ranking Republican senator on the Joint Economic Committee, Sam Brownback of Kansas, said. “I think he’s facing his biggest test right now.”
Mr. Brownback reserved judgment on Mr. Bernanke’s record to date but urged the Fed to continue lowering interest rates to spur growth in the economy.
Other Republicans offered more enthusiastic support for the chairman, with the GOP’s senior House member on the economic panel, Rep. Jim Saxton of New Jersey, saying Mr. Bernanke had done a “superb” job. “The current challenges to monetary policy are very formidable, but Bernanke has handled them deftly so far,” Mr. Saxton said. He praised the chairman for being candid and “flexible.”
The lone Republican representing New York City, Rep. Vito Fossella of Staten Island, said Mr. Bernanke has had “to navigate some pretty rough shoals” and that he supported Mr. Bernanke’s reappointment to another term. Senior Democrats were more circumspect, and none of those surveyed were willing to commit their support to another four-year term for Mr. Bernanke, an appointee of President Bush. Mr. Bernanke’s predecessor, Alan Greenspan, was appointed by a Republican, President Reagan, and reappointed by the next three presidents, including Bill Clinton.
Mr. Bernanke drew praise for announcing moves last month to make the Federal Reserve board’s decision-making more transparent. Under the changes, the Fed will release four annual economic forecasts instead of two, and those reports will look three years into the future rather than the current two. They will also contain more detail, offering a larger window into the board’s deliberations.
Mr. Greenspan had been seen as resisting those types of changes to a regulatory body known for its secrecy. The idea behind them, Mr. Bernanke has said, is to enhance the board’s ability to keep long-term inflation in check.
In response to the wave of defaults that has crippled the subprime mortgage industry, the Federal Reserve issued guidance to borrowers and worked with local banks across the country on initiatives to help homeowners stave off foreclosure.
Yet while Democrats applauded those moves, they expressed concern that the Fed was too slow to respond to the market turmoil and in particular the subprime mortgage crisis.
“I give the chairman credit for working to ease the credit crunch, and promising to issue long overdue guidance on mortgage lending,” the vice chairwoman of the Joint Economic Committee, Rep. Carolyn Maloney of New York, said in a statement. “That said, however, the Fed should have issued guidance a long time ago to protect consumers from the questionable lending practices that have pushed so many subprime lenders into foreclosure.”
A Queens Democrat who sits on the House Financial Services Committee, Rep. Gary Ackerman, said Mr. Bernanke had “barely” met expectations and linked him to what he said was a lackluster response by the Bush administration to the economic uncertainty. Though the Federal Reserve board is an independent entity, some lawmakers have looked to Mr. Bernanke to pressure President Bush to respond more aggressively to aid homeowners. At a hearing last month, the chairman of the Joint Economic Committee, Senator Schumer, praised Mr. Bernanke for the Fed’s rate cuts in August and September but urged him to “jawbone” the administration into action.
Mr. Bernanke earned more support from the head of the Senate Banking Committee, Christopher Dodd of Connecticut, who said he had “done his best to act in a responsible way to ease the credit crunch.” Mr. Dodd, who is seeking the Democratic presidential nomination, said it was premature to say whether he would reappoint Mr. Bernanke to another term.
Though the financial markets will be watching to see if the Fed lower rates again at its meeting on December 11, some of the political pressure on Mr. Bernanke may ease with the Bush administration’s announcement of a deal with lawmakers to freeze interest rates on some subprime mortgages.
Action by the administration “takes the heat off Bernanke, to some degree,” a professor at Oberlin College who formerly served as an economist for the Federal Reserve Banks of New York and Chicago, Kenneth Kuttner, said. Economists said that while the Fed must listen to the concerns of lawmakers, the financial markets will ultimately determine Mr. Bernanke’s fate beyond 2010, regardless of whether the next president is a Republican or Democrat.
“The jury is very much still out,” the chief economist at Moody’s, John Lonski, said.
“Financial markets and the real economy are not quite ready to place Ben Bernanke among the great Fed chairmen of all time. At the same time, I don’t think there’s been great disappointment voiced in Bernanke’s reign.”