Opinion: For both sides, Fed chairman choice is a crucial battle in a broader war

It isn’t that long ago, but few people remember that 30 senators voted against Ben Bernanke when President Obama nominated him for a second term as chairman of the Federal Reserve in 2010. 

Back then left-leaning Sen. Bernie Sanders, the Independent from Vermont, joined with hard-right Republican Sen. Jim DeMint of South Carolina to denounce Bernanke as a captive of Wall Street. They made that charge even though Bernanke, a Republican, was first appointed by President Bush and was being nominated for a second term by a Democrat, President Obama. 

Sen. Sanders bragged after the 2010 vote: “We got more votes in opposition to the reappointment of a Fed chairman than at any time in history…the Fed has got to begin to protect the interests of the middle class and working families and small business people of this country rather than the CEOs of Wall Street.” 

Now, as the Senate prepares for a new set of confirmation hearings, the political fires burning around the economy, the federal budget, entitlements and the debt ceiling remain as intense as in 2010. 

Confirming a new chair for the Fed was once a process of interest only to bankers, economic reporters and the agency’s most persistent critic, former Rep. Ron Paul (R-Texas). That is not the case anymore. 

These confirmation hearings will be the biggest stage yet on which to debate the economic direction of the country, the shrinking middle class and the growing divide between rich and poor. It will impact on the 2014 mid-term elections and the Obama legacy. 

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“The Fed needs new independent leadership,” the Wall Street Journal’s right-of-center editorial page wrote last week, “especially as it begins to unwind its extraordinary bond purchases. Sooner or later the next Fed chairman will have to raise interest rates and the pressure not to do so will be enormous from Democrats who want to elect Hillary Clinton in 2016.” 

The political fight over Fed policy was evident in the 2012 GOP primaries. Former Speaker Newt Gingrich said that if he won the White House he’d “fire [Bernanke] tomorrow.” Texas Gov. Rick Perry charged the chairman’s policy was “treasonous in my opinion.” 

The reason for Capitol Hill’s current focus on the Fed was evident in last week’s decision by the agency to keep interest rates low. The move was a boon to the stock market. But it also signaled that five years into the Obama administration’s efforts at revival, the nation’s economic recovery is too weak to proceed without a helping hand. 

Republicans see Bernanke as the hand that is keeping the economy afloat and helping Obama’s popularity. They want the Fed, which they argue is not properly accountable to the Congress, to stop what is described as printing money out of “thin air.” 

Even the selection of a new person to lead the Federal Reserve — an announcement likely to come this week with deputy Janet Yellen now the favorite — takes on added significance because of the great political divide over the budget and debt ceiling. The nominee will be asked to take sides.

Last week, Republicans in Congress signaled they are willing to trip up the stumbling economy in service to their ideological hatred of the president’s healthcare plan. And there is no sign of any deal on raising the debt ceiling before the mid-October deadline. 

The president also upped the fight over the economy last week in a speech on the fifth anniversary of the 2008 financial collapse. He said “one faction,” of the GOP is threatening “economic chaos if it doesn’t get 100 percent of what it wants — that’s never happened before.” 

“After all the progress that we’ve made over these past four-and-a-half years, the idea of reversing that progress because of an unwillingness to compromise or because of some ideological agenda is the height of irresponsibility,” the president said. “It is not what the American people need right now.” 

But the pressure to change the nation’s economic policy is not just coming from the right. Democrats put pressure on the Obama White House to pull away from its favorite candidate for the Federal Reserve job, former Obama economic advisor Larry Summers. 

Officially the former Harvard president pulled his name from consideration. But in his letter of withdrawal Summers made it clear he did not think he could win an “acrimonious” Senate confirmation fight. The unstated reason was lack of support from the Democratic majority in the Senate. 

The opposition to Summers was surprisingly similar to the opposition to Bernanke in 2010. 

Bernanke’s critics say he was a captive of Wall Street who did nothing to prevent the housing market from blowing up, failed to regulate high-risk derivatives, and wanted cuts in Medicare as well as Social Security. 

Summer’s left-wing critics contend he paved the way for the financial collapse by backing deregulation of financial markets. His right-wing critics say he remains too close to the president, and that this would have given a political taint to his fiscal decisions. 

Get ready for more of these bipartisan attacks on the next nominee.

Ron Paul once wrote a book titled “End the Fed.” He is somewhere smiling.