* U.S. Senate backs Bernanke despite misgivings
* Vote does not erase political pressure on Fed
* Praise for crisis management, ire over loose rules
(Recasts with additional quotes, details, background)
By Mark Felsenthal and Thomas Ferraro
WASHINGTON, Jan 28 The U.S. Senate on Thursday
backed Ben Bernanke for a second four-year term running the
Federal Reserve, the world's most powerful central bank,
despite deep misgivings over his perceived policy missteps.
Bernanke survived a revolt by lawmakers angry at big banks
and their regulators, including the Fed. He still faces acute
political pressure to ease economic strains at a time when the
U.S. central bank is showing divisions over how much support
the economy needs.
Senators credited Bernanke with steering the economy
through a wrenching financial crisis but leveled withering
criticism at him. They said his policies sowed the seeds of the
turmoil and he initially showed a slow response to the crisis.
"Bernanke fiddled while our markets burned," said Senator
Richard Shelby, the top Republican on the Senate Banking
The surprise election last week of a Republican to a
Massachusetts U.S. Senate seat long held by Democrats
underscored the voter anger over Wall Street bank bailouts and
the weak economy, undercutting support for Bernanke.
For awhile his confirmation appeared in doubt, rattling
global financial markets.
President Barack Obama and Senate allies pressed senators
over the past week to muster the 60 vote super-majority needed
to overcome efforts to block Bernanke's nomination.
In the end, the Senate voted 70-30 to confirm Bernanke, the
stiffest opposition to any nominee for Fed chairman in the
nearly 32 years the Senate has voted on the position. Paul
Volcker, who engineered two recessions with sky-high interest
rates to break inflation, was confirmed 84-16 in 1983.
"The politically neutral and independent Fed has really
been politicized this week, probably to its detriment," said
Chris Krueger of Concept Capital, a private firm that tracks
Washington for institutional investors.
Many lawmakers who ended up supporting Bernanke said they
were swayed by the ingenious approaches the Fed chief used to
avert a deeper economic breakdown and said maintaining
continuity would help sustain a fragile recovery from the
deepest recession since the Great Depression.
"Chairman Bernanke's performance in addressing the economic
crisis and his current efforts to significantly enhance
financial regulation to help prevent future crises outweigh his
past mistakes," said Senator Carl Levin, a Michigan Democrat.
Reflecting the public frustration at bank bailouts,
Democratic Senator Sheldon Whitehouse said it was time to
"pivot from the necessary rescue of our major financial
institutions to the equally if not more necessary help to
Bernanke, whose first term as Fed chief expires on Sunday,
will lead a central bank that has been reshaped by financial
crisis, a recession and the shifting politics that ensued.
His biggest task in coming months will be to decide when
and how to dismantle or "exit" emergency measures that he
helped put in place to support the economy and financial
markets, without stunting a fragile recovery.
After a two-day meeting, the Fed on Wednesday repeated its
vow to keep interest rates "exceptionally low" for "an extended
period." But Kansas City Federal Reserve Bank President Thomas
Hoenig dissented, arguing it was time to drop that pledge.
It was the first policy dissent since January 2009 and
showed growing tensions on how the Fed should move forward.
Bernanke may find it increasingly difficult to forge a
consensus behind keeping rates low as a recovery builds.
SIGH OF RELIEF
Public outrage over the recession and expensive bank
bailouts is dominating Washington politics ahead of
congressional mid-term elections in November.
That anger could translate into new moves in Congress to
strip the Fed of its direct supervisory power over banks or its
responsibility for protecting consumers.
Congress might also demand greater transparency on Fed
emergency lending programs, and could decide to open up
monetary policy decisions for review.
Financial markets breathed a sigh of relief that Bernanke's
confirmation takes away some of the political leverage Congress
had over the Fed.
Many investors, particularly foreign investors, may have
worried Bernanke's confirmation difficulties heralded greater
political interference in central bank decisions, said Dan Fuss
a vice chairman at Loomis Sayles in Boston.
"You trust the central bank or you don't. This confirmation
takes that uncertainty away for many," he said.
> For some facts on Ben Bernanke, see [ID:nN28187409]
> For a graphic on Fed actions to battle credit crisis see:
> For highlights on the Senate debate, see [ID:nN28240591
> For more stories on Fed policy, see [FED/AHEAD]
(Additional reporting by Andy Sullivan, Pedro da Costa, Susan
Cornwell and Jennifer Ablan in New York; Editing by Andrew