WASHINGTON — With the Federal Reserve under more intense attack than at any time in decades, Ben S. Bernanke, the professorial chairman of the central bank, was schooled last month in how to handle the increased political demands of his job.
Representative Barney Frank, left, said of Ben S. Bernanke, the Fed chairman, right: “Ben Bernanke turns out to have better political instincts than anybody thought.”
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 best-seller lists. Despite vigorous protests by Mr. Bernanke, nearly 300 House lawmakers and 30 senators had endorsed Mr. Paul’s bill.
But when he sat down shortly after 8 a.m. on Oct. 1 at the Rayburn House Office Building for coffee and muffins with Representative Barney Frank, the rumpled and wisecracking chairman of the House Financial Services Committee, he took in some blunt advice.
Voters had become suspicious and unnerved by the Fed because of its trillion-dollar efforts to bail out the financial system, Mr. Frank warned. If the Fed really wanted to survive the disgruntlement in both parties, he continued, Mr. Bernanke would have to step back and let him devise a compromise.
Reluctantly, the Fed chairman agreed to reduce his own visibility on the issue and let Mr. 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.
On Tuesday, a new threat opened up: Senator Christopher J. Dodd, chairman of the Senate Banking Committee, declared that the Fed had been an “abysmal failure” at regulation. He introduced a bill that would strip virtually all of its power to regulate banks, including financial institution considered too big to fail.
There will be a fight. Mr. Bernanke and the Fed has powerful political supporters, from lawmakers like Mr. Frank and 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,” Mr. Frank said in an interview last week. “They accept the fact that I know what I’m doing up here.”
On one front, the Fed faces populist anger 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 battles about who should oversee Wall Street and big banks as Congress tries to pass a sweeping overhaul of financial regulation.
Last summer, the central bank hired an experienced Democratic hand and former lobbyist, Linda Robertson, to help deal with members of Congress. Mr. Bernanke alone has met privately with about 40 senators and many House members in the last few months, sometimes to dissect arcane policy issues and sometimes just to explain what he does in plain English.
At one recent meeting, Senator Sherrod Brown challenged Mr. Bernanke’s bona fides as a regular guy by giving him a pop quiz on baseball statistics. Mr. Bernanke, a passionate fan, passed.
Mindful that Democrats now control the White House and Congress, Mr. Bernanke put up virtually no opposition to President Obama’s proposal for a new consumer agency that would take over the Fed’s authority over consumer lending issues. Similarly, he avoided a bruising turf battle by agreeing that the Fed would share responsibility with other regulators to monitor systemic financial risk.
But Fed officials have been steely in protecting their two top priorities: the Fed’s political independence on monetary policy and the Fed’s role as undisputed overseer of financial institutions deemed “too big to fail.”
Mr. Bernanke took over the Fed nearly four years ago with less political experience than his predecessor, Alan Greenspan. And because he was forced to bail out companies and credit markets in such visible ways, Mr. Bernanke has enjoyed little of the mystique and distance that Mr. Greenspan used to his advantage.
No fight illustrates Mr. Bernanke’s political challenge better than the one over Mr. Paul’s bill to audit the Fed.
The maneuvering is still under way, involving intricate negotiations outside of public view. But, aided by the pledge of help from Mr. Frank and backing from the administration, Fed officials cautiously predict they will get what they want.
Mr. Paul’s bill would require the Government Accountability Office, an arm of the Congress, to complete a wide-ranging assessment of the Fed’s financial operations by the end of 2010. The audit would delve into bailouts of individual firms, short-term loans to banks, currency swaps with foreign central banks and the Fed’s effort to prop up mortgage lending by purchasing $1.25 trillion in mortgage-related securities.
Mr. Bernanke initially reacted to the bill in almost apocalyptic terms. The G.A.O. audits, he told a House hearing in late June, could lead to a Congressional “takeover” of monetary policy that would be “highly destructive to the stability of the financial system, the dollar and our national economic situation.”
That did not go over well with many lawmakers, who were competing to describe the Fed in dark and conspiratorial tones.
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