The reappointment announcement was not a big surprise. Bernanke has earned his stripes for his masterful leadership of the Fed, and other monetary and banking policies, when it became apparent that the United States, in conjunction with other major industrialized countries, was moving into a deep economic recession—with major systemic risks to the financial system.

In October 2008, there was a massive change in the style and effectiveness of Bernanke's leadership at the Fed. After tolerating a rather fractious Federal Open Market Committee through the summer of 2008, when a number of dissenting votes were cast and several board members were expressing open disagreement with the direction of the FOMC, Bernanke seized the reins quickly and brought the FOMC together as a unified force to fight the massive threat to the U.S. economy and its financial system. Bernanke challenged the FOMC to think outside of the box, and to bring new ideas and programs forward. Indeed, the Fed launched a massive array of programs to defuse the financial crisis and buffer the severe downward momentum in the economy.

The Fed's vast array liquidity programs (which peaked at the end of 2008 and 2009), in conjunction with the TARP capital injections, defused the crisis that threatened the very stability of U.S. financial system. The positive results of these programs are now clear for everybody who has eyes to see, and risk premiums on bank funding costs have now declined back to pre-crisis levels. Even though credit conditions remain tight, the banks are in the process of rebuilding their depleted capital positions, which is an essential prerequisite in moving toward a more sustainable recovery.

With respect to monetary policy, Bernanke strongly arm-twisted the FOMC into reversing its position on interest rates during September and October of last year; in August 2008, the FOMC had been sending signals about an imminent rate hike. Indeed, a unified FOMC had slashed interest rates to near zero by December—a radical shift in policy that was unprecedented in modern central bank history.

The positive results of this shift gave the banking system significant breathing room to reconstitute capital at a time when the capital ratios of U.S. banks had fallen below critical levels, thereby threatening the solvency of the nation’s banking system. It also contributed to a dramatic lowering of the entire yield curve, which ultimately brought down mortgage rates and corporate bond yields, and contributed to a revival of the U.S. housing and corporate bond markets in the first half of 2009.

Thus, under Bernanke's tight leadership since October 2008, the Fed has made a few masterful strokes in monetary policy that averted a meltdown of the U.S. financial system and a much harder landing for the economy. Clearly, Bernanke has earned his leadership stripes. On top of this, he has kept his trademark cool and functioned with an amazing amount of grace under tremendous pressure from the markets, the media, and the politicians.