Federal Reserve Chairman Ben Bernanke stood on the runway of an Army base in West Texas in the cold predawn of a November morning, welcoming back soldiers from their final deployment in Iraq. He later told them they were coming home to a different battleground.
"For a lot of people," he said during a speech at Fort Bliss, "I know it doesn't feel like the recession ever ended."
Mr. Bernanke, who turns 58 on Tuesday—which is also the Fed's last policy meeting of the year—is entering what are likely to be the final, critical stages of his own deployment as head of the central bank. His second four-year term ends in January 2014, leaving him two years to finish the job. Many friends and colleagues say they doubt he would want a third term. Republicans have promised to retire him. GOP presidential candidate Newt Gingrich wants to fire him.
Mr. Bernanke, an economic historian before taking up public service, cares more about his longer-term legacy than about his legions of critics. But after 10 years in Washington, six years at the helm of the Fed, his record is mixed, his legacy incomplete.
The Fed, under his leadership and earlier, failed to see the financial crisis coming. Once it struck, Mr. Bernanke acted boldly to soften its blow and may have prevented a repeat of the Great Depression. He played a central role engineering a recovery, but its progress has so far been disappointing.
A spokeswoman for the Fed said the chairman was "solely focused on doing the best job he can right now."
Looking ahead, Mr. Bernanke wants to leave the U.S. economy on a more solid footing, with lower unemployment and stable inflation, despite perils on the horizon. He also wants to transform the Fed by making its murky decision making more transparent.
Fed officials meet Tuesday, three years after they took short-term interest rates nearly to zero. They remain divided over whether to take action to bolster the recovery.
Mr. Bernanke doesn't want to proceed without a better strategy to explain moves by the central bank to a deeply suspicious public, a topic certain to be discussed.
Outside the meeting, Mr. Bernanke is grappling with economic issues beyond the Fed's control, including congressional gridlock over fiscal policy, the moribund housing market and Europe's debt crisis.
A friend of Mr. Bernanke likened him to a firefighter reluctantly suiting up to battle new troubles threatening the global financial system.
During the week of Thanksgiving, Mr. Bernanke engaged in a series of hastily arranged conference calls with the world's leading central bankers over the troubles in European financial markets. European banks were having trouble obtaining short-term dollar loans because of worries about their health.
Bank of England governor Mervyn King called on Mr. Bernanke and his counterparts from Canada, Japan, Switzerland and the European Central Bank to discuss the worsening problem, according to people familiar with the matter.
Early in the week they agreed to expand a program that made Fed loans of dollars more widely available overseas through central banks.
On Thanksgiving morning, Mr. Bernanke and the others sorted out the details, these people said.
Markets rallied when the program was finally announced on Nov. 30. Mr. King emerged as the catalyst for the calls as head of a coordinating group for central bankers at the Bank for International Settlements, a Basel, Switzerland-based body.
Many of these bankers also belong to the same intellectual club of economic Ph.D.s. Mr. Bernanke and European Central Bank president Mario Draghi studied at the Massachusetts Institute of Technology; Mr. Bernanke and Mr. King taught there together.
In recent conversations with Mr. Draghi, Mr. Bernanke urged the Italian central banker to respond aggressively to Europe's crisis, the same message he shared with Mr. Draghi's predecessor, Jean-Claude Trichet. Mr. Bernanke also has reviewed with Mr. Draghi the many programs initiated by the Fed during the 2008 crisis, just in case the crisis worsens.
The U.S. central bank in its monetary policy pushes interest rates up or down by moving money in and out of the financial system. Moving interest rates helps shape the incentives of firms and people to borrow, lend, spend and invest. The Fed also showed it could fight a crisis with emergency loans to banks and other financial institutions.
In recent months, Mr. Bernanke has been drawn to battles beyond his control. He regularly calls on Congress—usually in mild, academic terms—to develop better budget policies. He and other Fed officials worry the threat of large deficits in the long run have left many businesses and households uncertain about the future, and therefore less willing to spend and invest.
Mr. Bernanke has urged a budget plan that reins in government deficits at a pace that doesn't allow tax hikes or spending cuts to derail recovery in the short term—a suggestion that has gone nowhere.
"I don't know what more you can reasonably ask the guy to do," said Henry Paulson, the former Republican Treasury Secretary and a close ally during the financial crisis. "With interest rates where they are right now, at historic lows, and with all the steps he's taken, you can only rely on your central bank to do so much. A lot has to be done elsewhere."
Mr. Bernanke's colleagues are blunt about the mounting frustration inside the Fed about the inability of the White House and Congress to set fiscal policy. "You'd have to be from Pluto to think we're going to be able to deal with full employment unless the fiscal authorities get their act together," said Richard Fisher, president of the Dallas Fed. "The chairman, in his own words, has said basically the same thing I've said."
To address troubles in U.S. housing, Mr. Bernanke set up a task force inside the Fed. In September, they urged the regulator of Fannie Mae and Freddie Mac to try to make mortgage refinancing easier, recommending steps that were put into place in October.
A bigger question for the Fed, which isn't likely to be resolved at Tuesday's meeting, is whether to dive back into mortgage-backed securities markets.
During the financial crisis and early stages of recovery, it bought more than $1 trillion of mortgage debt to drive down mortgage rates. With housing still sluggish, some officials want to buy more.
But the Fed is divided. Several officials believe there isn't much more the Fed can or should do to boost growth. Opponents fear inflation if the Fed overplays its hand.
Mr. Bernanke will focus Tuesday on issues he can better control. If the central bank takes additional steps to boost the economy, top Fed officials want to be able to better explain why—for instance, by detailing how inflation and employment shape their decisions.
Part of the developing strategy is to reveal Fed forecasts for short-term interest rates.
Some officials predict that if investors see how long the Fed expects to keep interest rates low, they will push long-term rates down even further, spurring investment, spending and hiring.
The Fed took a step in this direction in August when it said it didn't expect rates to rise before mid-2013. Officials are looking for a systematic way to signal their intentions on rates.
Mr. Bernanke also is making progress on his long-sought goal of getting the Fed to adopt a formal inflation target of around 2%. That would likely require more explanation of Fed views on unemployment, which was 8.6% in November. Most officials believe unemployment can dip to 5% or 6% without inflation.
"That is really deep down in Ben Bernanke's bones, being as clear as possible about policy intentions and the view of the central bank of the economic outlook," said David Stockton, who was the Fed's top economist until he retired in September.
Mr. Bernanke's November speech at Fort Bliss was part of a Fed effort to put the chairman in front of more audiences to explain the central bank's actions. In April, he began holding quarterly news conferences.
Many people are displeased by Mr. Bernanke's record. Ron Paul, the Republican congressman and presidential candidate from Texas tried unsuccessfully in 2010 to subject Fed policies to regular congressional review.
If the Fed wants to renew its bond-buying program, he said, "Congress should assert its responsibility and curtail it and say, 'You can't do it unless you get permission from the Congress.'"
Opponents say Mr. Bernanke's Fed tenure will be remembered for such policy mistakes as pumping too much money into the system before and after the crisis. "We're going to have an inflation, it's only a question of when," said Allan Meltzer, an economic historian at Carnegie Mellon's Tepper School of Business.
"Anybody in that position thinks about how history is going to treat him. I don't think it will treat him well."
Mr. Paulson said Mr. Bernanke secured a spot in history by preventing an economic depression. "I've been in a foxhole with him," he said. "This is a guy who has been proactive, imaginative and courageous."
On inflation, Mr. Bernanke says there is no problem. The rate has averaged just over 2% annually during his tenure as chairman. Fed officials say most likely there is too much slack in the economy—unemployed workers, idle factories and such—for inflation to go higher any time soon. They say they will squelch it quickly if it does.
"The area where we have fallen short obviously is on the unemployment side," Mr. Bernanke told a November news conference. "Criticisms based on the concern about inflation have, so far at least, not proved to be very valid."
He has tried to build better relations with a Congress shaken by public outrage about the crisis and the Fed's role in it. During the first eight months of the year, he met privately with or telephoned lawmakers or congressional staffers 28 times, according to his calendar.
Still, Republicans, who installed Mr. Bernanke as a Fed governor in 2002 and elevated him to the top job in 2006, have mostly soured on him. His most ardent critic said the Fed chairman has done nothing to bridge the divide.
"Volcker would invite me over to breakfast, so I was [at the Fed] a couple of times," said Mr. Paul. "Greenspan, I would talk to him after hearings. I don't even know if I ever shook hands with Bernanke."
Since taking the helm of the Fed in 2006, after the long and dominant stewardship of Alan Greenspan, Mr. Bernanke has tried to make it an institution driven less by the chairman and more by rules and consensus. The shift has been chaotic at times, with Fed officials publicly disagreeing about what to do next. Mr. Bernanke has made clear he was sticking with the approach.
After ten years on the government payroll, Mr. Bernanke knows he has the potential to become very wealthy when he leaves.
Several of his former Fed colleagues have found lucrative work on Wall Street, as well as the speech circuit. His public financial disclosures show his main financial assets are the TIAA-CREF retirement funds from his years teaching at Princeton and Stanford universities. They're valued at between $1 million and $2 million. He also earns royalties on textbooks he has written.
One of his closest allies in Washington is Treasury Secretary Timothy Geithner. The two have breakfast or lunch together three to four times a month, according to his calendars. They talk policy and swap book recommendations.
At the Fed, some of Mr. Bernanke's closest allies have left. Donald Kohn, the former vice chairman and one of Mr. Bernanke's closest confidantes, retired last year. Kevin Warsh, a Fed governor and another close ally, left earlier this year. And heads of four divisions inside the central bank have retired, some exhausted from the financial crisis and its prolonged aftermath.
Aside from regular visits to Washington Nationals baseball games and the Kennedy Center for the arts, Mr. Bernanke's friends say the former economics professor isn't a part of the city's high-power social scene.
"Unless you want to go sit next to him at a Nationals game," said Mr. Paulson, "he's not going to spend a lot of time schmoozing."
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