Ben Bernanke was reappointed on Tuesday by President Barack Obama for a second four-year term as chairman of the Federal Reserve.

Mr Obama made the announcement in Martha’s Vineyard, Massachusetts, where he is on holiday with his family.

Mr Obama appeared with the Fed chief at his side at 9 am local time and praised the central bank governor’s handling of the financial crisis of the past year. ”Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall,” Mr Obama said

The president also hit back at Mr Bernanke’s critics, defending the central bank chief’s actions – and policies put in place by his own administration – as ”steps of necessity, not choice”.

”Taken together, all of these steps have brought our economy back from the brink. They are steps that are working,” Mr Obama said.

Mr Bernanke said: “I will work to the utmost of my abilities to help provide a solid foundation for growth and prosperity in an environment of price stability.”

Tuesday’s announcement could deflect attention from other less market-friendly news. The White House is set to raise its 10-year budget deficit projection by $2,000bn to approximately $9,000bn, and the non-partisan Congressional Budget Office will release new forecasts as well.

The decision is the ultimate seal of approval for the Fed chairman, who was originally appointed by George W. Bush, the Republican former president, and whose reappointment was seen as far from guaranteed.

It follows Mr Bernanke’s extraordinarily aggressive efforts to fight the economic crisis, including radical interest rate cuts, loans to non-bank financial institutions, Fed-led bail-outs of AIG and Bear Stearns and gigantic asset purchases – exploiting the Fed’s powers to their legal limits in an effort to prevent a second Great Depression.

Economists, investors and fellow central bankers overwhelmingly favour Mr Bernanke’s reappointment. However, disquiet in Congress over the exercise of extraordinary Fed powers has raised a cloud over his future.

The Fed chairman’s reappointment still has to be approved by the Senate, but his prospects look good. Chris Dodd, chairman of the Senate banking committee, on Monday said that “reappointing chairman Bernanke is probably the right choice”, though he promised a “thorough and comprehensive confirmation hearing”.

Mr Obama is said to credit Mr Bernanke with a leading role in helping to avert economic catastrophe. By reappointing Mr Bernanke, Mr Obama can also emphasise his bipartisan credentials at a time when he is embroiled in a fiercely partisan battle over healthcare reform.