WHEN Ben Bernanke succeeded Alan Greenspan as chairman of the Federal Reserve in February 2006, he was a popular choice.

A former academic whose specialism was the Great Depression, little could he have suspected he would be using his own research as a primer when the worst financial crisis since that era struck.

Bernanke, 54, who as a Fed governor in the early 2000s was vocal in warning of the dangers of deflation — falling prices — would also not have been expecting to be grappling with the biggest inflation threat since the 1980s, as a result of soaring oil and commodity prices.

“Gentle” Ben, as he is sometimes known, can be credited with recognising the dangers faced by the US economy earlier than most. Even before the credit crisis broke last summer, he was keen to call a halt to the Fed’s programme of interest- rate rises, which went all the way from the 1% level established under Greenspan to 5.25%.

Despite this, within weeks of the credit crisis breaking he was being criticised for being too slow to cut rates and head off recession.

Jim Cramer, the excitable host of CNBC’s Mad Money, screamed that the Fed chairman was “too academic” and called for drastic action.

Bernanke did take such action, though in his own time, bringing the key Fed Funds rate down to 2%. In this he differed from the approach of his old MIT corridor neighbour Mervyn King who has been much more cautious.

The Fed chairman’s biggest baptism of fire — so far — came in March. Bear Stearns, the US investment bank, was facing collapse and Bernanke, with the US Treasury secretary, Hank Paulson, helped to broker a rescue by JP Morgan Chase, with Fed support.

Since March, things had appeared to be going better for Bernanke.

Apart from housing, the economic news was a little more upbeat. The dollar recovered from its lows and Wall Street began speculating on when the Fed might start to move rates upward from the 2% low point.

Such talk has now evaporated. Bernanke still has his inflation problem, exacerbated by a rise in the oil price to $147 a barrel on Friday. But he also has work to do to keep the financial system afloat and prevent America sliding into the kind of slump he knows only too well from his academic studies.

On Thursday he asked Congress to consider legislation that would give federal regulators the authority to oversee bank holding companies and payment and settlement systems, and to control the “orderly liquidation” of financial institutions in difficulty that are seen as critical to the sound operation of the financial system.

“The financial turmoil that began last summer has impeded the ability of the financial system to perform its normal functions and adversely affected the broader economy,” he said. And that remains his biggest headache.

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