Today, President Obama will announce that he will reappoint current Federal Reserve Chairman to a second four year term. My guess is that this was a very easy decision and I will highlight the reasons for it below.
I would also like to thank mtperson for nominating my diary from yesterday on how to follow economic data for the diary rescue.
Let's get the most obvious reason for Bernanke's reappointment out of the way: keeping Bernanke allows Obama to keep himself a little removed from "owning" the recession. Had Obama appointed anyone else, he would have from that point forward "owned" the recession and any double dip or stagnation would have fallen directly at his feet (whether fair or not). The reappointment was first and foremost a political decision (and a wise one).
A second reason for Bernanke's reappointment, sadly, is the stock market recovery. The market has decided it likes Ben and there was too much risk in appointing someone else and potentially spooking the market. While we all hate governing by Dow, we must recognize that people feel better when their 401k's are rising and thus getting rid of Bernanke at this time would have been too big of a risk (and remember timing is everything, as had he come up for reappointment in March it is quite likely we would have had a different outcome).
The third reason for Bernanke's reappointment is the state of the current data. The economy appears to be in the process of bottoming (appearances can be deceiving, but right now that's what the traditionally followed data show us) and the banking system didn't collapse, which was a huge fear earlier in the year. Bernanke is essentially getting credit for preventing the second Great Depression, whether or not one was actually ever going to materialize. Bernanke, Paulson, Geithner, Bush, and Obama all did a spectacular job of convincing the public that without huge intervention by government our economy would have completely collapsed. This fear of God elevated Bernanke to hero status amongst many in both Washington and Wall Street, which makes his reappointment quite easy.
Finally, Bernanke may just be the best guy for the job right now. He is a depression expert (which many fear(ed) we face(ed)) and will likely err on the side of preventing deflation instead of worrying about inflation. Obama is giving Ben a chance to test his theories of depression avoidance and so far, they are working.
On other thing to keep in mind. Obama didn't exactly have a stellar cast waiting in the wings to replace Bernanke. Larry Summers was thought to be a leading candidate, but he was part of the late 90's deregulation movement and isn't exactly respected by many. The other candidate's name that I heard mentioned was Janet Yellen of the San Francisco Fed, who is considered an inflation dove, whose appointment may have had immediate negative impact in the bond markets.
I wish Bernanke good luck in the very difficult task of threading the economic needle between depression on inflation that he will face.