Senator puts block on keeping Bernanke

WASHINGTON – Sen. Bernard Sanders, I-Vt., said Wednesday that he will put a hold on the nomination of Federal Reserve Chairman Ben Bernanke for a second term, a step that could push the confirmation into next year but is unlikely to torpedo it.

While Sanders is one of only a few senators who have openly objected to Bernanke’s renomination, the hold reflects the deepening fault lines on Capitol Hill over the Fed’s performance.

“Clearly, this guy is part of the problem,” Sanders said in an interview, adding that Bernanke shares blame for the federal bailout of Wall Street and the deep recession. “I hope the president will give us a new nominee.”

Sanders’ action means that Senate Majority Leader Harry Reid, D-Nev., will have to win the assent of 60 senators before a final vote can be taken on the nomination. Typically, only 51 votes are needed to confirm a nominee.

The parliamentary maneuver came as Bernanke prepares to face the Senate Banking Committee this morning for his confirmation hearing. Bernanke is no stranger to taking questions on Capitol Hill. The Federal Reserve Chairman has testified before Congress a dozen times already in 2009. But this time, he has more at stake. A wide array of questions are likely to come up, including the Fed’s stewardship in the run-up to the crisis and what future role it should play.

Although he comes as a supplicant seeking confirmation, he will voice unpopular positions: Defending the Fed’s actions to try to contain the financial crisis, including the bailout of American International Group; standing up for the Fed’s powers to supervise banks, which many senators seek to remove; and arguing that efforts to expand oversight of the central bank’s management of economic policy would undermine its effectiveness.

Meanwhile, the unemployment rate is 10.2 percent and rising, and senators are sure to want assurances that the Fed will continue policies meant to strengthen the economy – but not leave those policies in place so long as to stoke inflation.

Even many senators with misgivings about the Fed’s performance respect him personally, including Banking Committee Chairman Sen. Chris Dodd, D-Conn. But the hearing could still prove to be one of the most difficult balancing acts of his time in public life, say people who closely watch the Fed.

“He has to stand up and connect the dots between what the Fed has done to help Wall Street and the economy on Main Street, and that’s a difficult thing to do,” said Diane Swonk, chief economist at Mesirow Financial.

That task is particularly pressing because of several legislative initiatives that Bernanke has called a threat to the Fed. Dodd and other leading officials seek to strip the central bank of its long-standing power to supervise the nation’s banks directly. And Rep. Ron Paul, R-Texas, has introduced a bill, sponsored by a majority of House members, to allow the Government Accountability Office to audit how the Fed makes monetary policy, an effort that Bernanke and many economists outside the Fed argue would make it harder for the central bank to make unpopular but necessary decisions.

Bernanke’s recent public comments offer hints of the message he will deliver. He is likely to emphasize his respect for the Fed’s dual mission of keeping prices stable and employment strong.

Bernanke is likely to acknowledge that joblessness is unacceptably high, showing that the Fed considers unemployment to be its foremost challenge in the near future. Fed leaders expect the unemployment rate to be in the 9.3 percent to 9.7 percent range at the end of 2010 and inflation to remain low.

“Some important headwinds – in particular, constrained bank lending and a weak job market – likely will prevent the expansion from being as robust as we would hope,” Bernanke said last month.

But at the same time, he will probably assure the senators that the central bank has the tools and willpower to remove those supports, such as a target interest rate near zero, when the time is right. Some lawmakers have said they worry that the Fed is flirting with inflation by doubling the country’s money supply as part of efforts to buttress the economy.