Bernanke not likely to get second term
Ben Bernanke’s confirmation to a second term as Federal Reserve chairman suddenly appeared in jeopardy on Friday even after U.S. Senate Majority Leader Harry Reid said he would back him.
Two Senate Democrats on Friday announced they would oppose Bernanke, citing concerns about the economy that promise to be a key campaign issue and joining the growing number of senators who have vowed to vote against his appointment.
With the U.S. job market in disarray and voters angry at Wall Street, members of Congress facing mid-term elections in November have come down hard on the central bank.
Reid, late in the day, issued a qualified statement of support for Bernanke, whose current term expires on January 31.
“While I will vote for his confirmation, my support is not unconditional,” Reid said. “The Senate will continue to demand visible and responsible results for the people we represent.”
Democratic aides said a vote is expected on Bernanke sometime next week, though one has not yet been scheduled and it was unclear when, or if, it would be.
Noting the uncertainty of Bernanke’s fate, one senior aide said: “I believe there will be the votes to confirm him. But it’s going to be very close.”
Critics say the Fed failed to prevent the worst financial crisis since the Great Depression, and combated the meltdown in a way that favored the financial sector at the expense of ordinary citizens.
Senators Barbara Boxer and Russ Feingold brought the total of known “no” votes among the Democratic majority to four, while many others have said they were still on the fence.
“Our next Federal Reserve chairman must represent a clean break from the failed policies of the past,” Boxer said. “It is time for Main Street to have a champion at the Fed.”
The shift came rather abruptly and has added a new element of uncertainty to a stock market that had already been reeling in recent days. The Standard & Poor’s 500 fell into the red for the year-to-date on Friday, joining the Dow and Nasdaq indexes.
“The unthinkable has become a very real possibility — risks are rising that the Senate will unseat” Bernanke, said Michael Feroli, economist at JP Morgan.
In-trade, an online betting platform, on Friday showed only a 68 percent chance that Bernanke will be confirmed, down from 95 percent just a few days back.
Several Republicans have already come out against Bernanke and some have moved to block his confirmation, forcing Senate leaders to secure a super-majority of 60 votes in the 100-member chamber to move the nomination.
While Reid backed Bernanke, his deputy, Assistant Senate Democratic leader Richard Durbin was still undecided, a senior party aide said. Another member of the Senate Democratic leadership, Charles Schumer, will vote for Bernanke, an aide said.
Large U.S. banks, seen as the source of the financial crisis that punished the economy with the deepest recession since the 1930s, have come under pressure from Washington for their quick return to big profits and paying outsized bonuses after receiving billions of dollars in taxpayer aid.
The unemployment rate currently stands at 10 percent, with more than 15 million Americans out of work.
With mid-term elections in November, many lawmakers are loath to take any stand that appears to benefit Wall Street. That tendency has only been sharpened since this week’s Republican upset for the Massachusetts Senate seat that had been a Democratic stronghold for decades.
Bernanke, who was first named as chairman by former President George W. Bush, was nominated to a second term by President Barack Obama in August.
“Democrats are nervous,” said a senior Republican aide. “But I don’t think Democrats are going to kill the president’s nominee. I think he will be confirmed.”
He said if Democrats are unable to secure the 60 votes needed to clear procedural hurdles they will probably not even bring the nomination up for a vote. A Democratic aide declined to speculate if that would be the case.
The White House said Obama remained confident the Democratic-controlled Senate would muster the votes needed to clear procedural hurdles and confirm Bernanke’s nomination.
“We’re going to work our side pretty hard, and we are working with people in the business community who are going to push pretty hard,” an Obama administration official said.
Wall Street bankers generally have a very favorable view of Bernanke, crediting him with stabilizing the financial system with creative policies like special lending facilities for disrupted credit markets and direct purchases of mortgage and Treasury bonds.
It is unclear what would happen if Bernanke, who is also serving a separate, 14-year term on the Fed’s board, is not confirmed by that deadline. The law specifies that the vice chairman of the board, currently Donald Kohn, would serve in the “absence” of the chairman, but absence is not defined.
Some experts say it is possible the board could name Bernanke to serve as chairman on an acting basis. Senator Christopher Dodd has said Kohn would temporarily take over chairmanship of the board if Bernanke were not confirmed in time.
“Monetary policy in its current construct would be unaffected by a delay in Bernanke’s confirmation unless the delay is seen as either presaging his rejection, or indicating a politicization of the Fed and excessive government involvement,” said Tony Crescenzi, market strategist and portfolio manager at bond fund Pimco.