Aug. 26 (Bloomberg) -- President Barack Obama was meeting top economic advisers April 10, Good Friday, as regulators prepared stress tests for the largest U.S. banks, when he turned to Federal Reserve Chairman Ben S. Bernanke.

“Mr. Chairman, I know no one is thanking you for the tremendous job you’re doing, so let me do it,” Obama told him at the White House. “Sorry to say, my thanks is about as good as it’s going to get right now.”

That was until yesterday. After departing from Andrews Air Force Base near Washington, D.C., in a government airplane, Bernanke landed on Martha’s Vineyard, Massachusetts, to receive the ultimate vote of confidence: nomination to a new four-year term.

“The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and the world has ever faced,” Obama said, flanked by the Fed chairman. “Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free fall.”

The announcement brought to closure speculation about whether Obama would side with Bernanke even though their personal history is limited and they come from different political parties.

Increasing Confidence

From about that point in April, Obama gained increasing confidence in Bernanke, people familiar with the matter said. In the last several weeks, finally focusing on the Fed appointment, the president left no doubt that he would offer the central banker another term. By that point, there were no other serious contenders.

They had met only a few times before Obama’s election in November. Bernanke briefed the candidate after the September collapse of Lehman Brothers Holdings Inc., for instance.

Then, as both the new administration and the Fed pressed unprecedented levels of spending, Obama worked more closely with Bernanke and came away impressed, said David Axelrod, a senior adviser to the president.

Obama’s move, coming only a day after a spokesman told reporters to enjoy a news-free week, was timed to avoid disrupting the financial markets after weeks of speculation, officials said.

“This is the kind of thing that obviously affects the market,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said yesterday in an interview.

Higher Deficits

The timing also helped the White House deflect attention from news of higher projected deficits and unemployment and the announcement of an investigation of possible abuse of prisoners by U.S. interrogators.

“That doesn’t mean there isn’t an independent rationale for announcing it right away, but he could have announced it two days ago, two days from now and he chose to do it now,” said Stuart Rothenberg, editor of the nonpartisan Rothenberg Political Report in Washington.

Obama’s decision was made among a tight clutch of advisers that included Treasury Secretary Timothy Geithner, White House Chief of Staff Rahm Emanuel and Axelrod. Members of Congress, including Frank, were notified just before the news broke Aug. 24.

The appointment was rarely discussed during the president’s daily economic briefing, out of deference to Lawrence Summers, chairman of the National Economic Council, who was once considered a candidate for Fed chairman.

Meetings With Geithner

Instead, Obama and Geithner met two or three times a month when they discussed the nomination and other matters.

Geithner, the former president of the New York Federal Reserve, and Bernanke had worked closely as the financial sector verged on implosion. They were mostly aligned about how to address the crisis, with the notable exception that Geithner favored a consumer financial regulatory agency independent of the Fed.

While Bernanke’s future was a frequent topic of speculation on Wall Street, Obama and his top aides only recently made it a priority as they focused on more immediate matters such as their push to overhaul the U.S. health-care system.

Other factors played into the decision. White House officials felt that Bernanke rehabilitated his image on Wall Street after he was criticized as too slow to respond to the housing slump and for calling the crisis contained before reversing course in August 2007 and cutting interest rates. He also came under fire for failing to prevent the collapse of Lehman Brothers.

Investor Confidence

Over the last six months, Bernanke regained investor confidence, in no small part from his own efforts to portray the Fed’s expansive use of its powers in unprecedented ways. By almost a 3 to 1 margin in July, investors surveyed in the first Quarterly Bloomberg Global Poll said Bernanke had earned another term.

The Fed was credited with effectively handling stress tests of major banks, helping to calm credit markets.

And administration officials came to Bernanke’s defense even as lawmakers raised questions about his role in pushing through Charlotte, North Carolina-based Bank of America Corp.’s purchase of Merrill Lynch & Co. last year.

After Bernanke granted an interview to CBS Corp.’s “60 Minutes” television program in March, a rare occurrence for the Fed chairman, Emanuel called Bernanke and told him he did a “great job.”

Obama, when asked whether he had full confidence in Bernanke, said in a June 16 Bloomberg News interview that he “has done an extraordinary job under extraordinary circumstances.”

Lesson From Clinton

Administration officials also drew a lesson from President Bill Clinton’s 1996 decision to appoint Federal Reserve Chairman Alan Greenspan to another term. Vice President Al Gore opposed it, while other Clinton advisers supported the move. Ultimately, Clinton sided with Greenspan’s supporters, knowing that it would mean both would bear responsibility for the economy.

Similarly, Obama’s aides reasoned that if he appointed somebody other than Bernanke, Obama would fully inherit the economic problems and take ownership of the recession.

Obama also didn’t want stories in the media speculating about the fate of Summers, who was once thought to be a contender along with San Francisco Federal Reserve Bank President Janet Yellen.

Night Meeting

On Aug. 19, Obama invited Bernanke to join him and Geithner in the Oval Office at about 8 p.m., the late hour intended to escape notice. Obama offered him the nomination and Bernanke accepted. His post requires Senate approval, which is expected.

Bernanke then traveled to Jackson Hole, Wyoming, for the annual central bankers’ symposium where most economists in attendance praised him, not knowing his fate.

On the night of Aug. 20 in Wyoming, Bernanke joked about his future, noting that for an evening activity, the local astronomy club would be showing stars and constellations to attendees.

“Do you know if they do astrology?” he asked.

On Aug. 24, Bernanke called Federal Reserve district bank presidents to give them the news privately. And he made plans for Martha’s Vineyard. Initially, Bernanke told White House aides that he would wear a suit and tie. He was told that the president wanted to appear in slacks and a blue blazer.

Bernanke changed his outfit to match that of the president.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net;

Last Updated: August 25, 2009 22:27 EDT