As debate over Fed’s role grows, Bernanke girds for political fight
WASHINGTON - With the Federal Reserve under more intense attack than at any time in decades, Ben Bernanke, its professorial chairman, got a schooling last month in how to handle the increased political demands of his job.
For months, he had warned - without anyone on Capitol Hill appearing to listen - that a seemingly innocuous bill to let Congress “audit’’ the Fed would gravely threaten the central bank’s independence.
It was alarming enough that the bill’s author was Representative Ron Paul, the quixotic Texas Republican whose new book, “End the Fed,’’ had just landed on the bestseller lists. Nearly 300 House lawmakers and 30 senators had endorsed Paul’s bill.
But when he sat down shortly after 8 a.m. on Oct. 1 with Representative Barney Frank, Democrat of Massachusetts, the rumpled and wisecracking chairman of the House Financial Services Committee, he got some blunt advice.
Voters had become suspicious and unnerved by the Fed because of its trillion-dollar efforts to bail out the financial system, Frank warned. If the Fed really wanted to survive the backlash in both parties, he continued, Bernanke would have to step back and let him devise a compromise.
Reluctantly, the Fed chairman agreed to let Frank take the lead.
It was just one example of how the Fed has been forced to scramble as its power comes under more fire than at any time in decades.
Yesterday, a new threat opened up: Senator Christopher Dodd, chairman of the Senate Banking Committee, declared the Fed an “abysmal failure’’ at regulation and introduced a bill that would strip virtually all of its power to regulate banks, including financial institutions considered too big to fail.
There will be a fight. Bernanke and the Fed have powerful political supports, from lawmakers like Frank to President Obama. But the Fed chairman is being forced to nurture those ties as never before and to carefully map out which battles are worth fighting.
“Ben Bernanke turns out to have better political instincts than anybody thought,’’ Frank said last week. “They accept the fact that I know what I’m doing up here.’’
On one front, the Fed faces a populist backlash from both left-wing Democrats and right-wing Republicans about its power and secrecy. At the same time, officials are locked in brutal but arcane turf fights and policy battles about who should oversee Wall Street and big banks. The result has been to prompt an intense debate over the Fed’s role.
Fed officials have worked feverishly to map out a political strategy. The central bank hired an experienced Democratic hand and former lobbyist, Linda Robertson. Bernanke has met privately with about 40 senators and many House members.
Fed officials have been steely in protecting their two top priorities: The Fed’s political independence on monetary policy, and its role as undisputed overseer of financial institutions deemed “too big to fail.’’
The maneuvering is still underway. But, aided by the pledge of help from Frank and backing from the administration, Fed officials cautiously predict they will get what they want.
