President Obama is reappointing Ben Bernanke as Fed Chairman. Though there will be those in Congress who disapprove, it is highly probable that Bernanke will keep his job after January 31st.

The move is part of a broader plan to keep the Obama economic team in place. A White House official told, “The president wanted the team that has been working to rescue this economy together….This continuity is crucial.”

Though Bernanke’s actions have at times been controversial (e.g. the Bank of America [BAC] takeover of Merrill Lynch), reappointing the Fed Chairman is the right move. Bernanke inherited a bad set of financial circumstances and moved boldly in his attempts to limit the damage. We may never know whether his actions prevented a depression from occurring, but in a crisis situation, action is always better than no action.

The next challenge for Bernanke will be his hardest, and a real test of how many lessons he learned from his analysis of the Great Depression. The Fed Chairman must keep inflation from spiraling out of control and, at the same time, prevent a double-dip recession. This will be very difficult, as the margin for error is almost nil.

His next actions must include removing the programs that have made essentially free capital available to Wells Fargo (WFC), KeyCorp (KEY), U.S. Bancorp (USB) and many other banks.

He also needs to ensure than the freeze on lending continues to melt, or else face an even worse housing crisis — just as D.R. Horton (DHI) and many others are now starting to find stable ground. At the same time, he may have to battle higher commodity prices, a weaker dollar and other inflationary pressures.

If Bernanke screws up, we will see a return of stagflation, or worse. If he makes the right policy moves, and gets the necessary fiscal restraint from Congress, he could successfully engineer a return to a lengthy period of economic growth.

Unfortunately, the odds are stacked against Bernanke and the entire Obama economic team. It’s not that we won’t see growth next year, but rather we also see potential for further economic problems in 2011 and 2012. Fortunately, the Fed Chairman appears to understand these risks, and that is precisely why he should get a second term.

Charles Rotblut, CFA is the senior market analyst for
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