Will He Stay or Will He Go?

The media’s all a buzz with the question of whether Fed Chairman Ben Bernanke will survive the political gauntlet and be reconfirmed. The latest chatter leans toward an affirmative answer, including this overt prediction from Senate Republican Leader Mitch McConnell yesterday: “”He’s going to have bi-partisan support and I would anticipate he will be confirmed.”

At the very least, it’s hard to imagine that the majority party would inflict a political wound on their President, who’s already on the defensive in the wake of last week’s election in Massachusetts. Obama’s bona fides are being questioned left and right (politically speaking and otherwise) on matters of finance and economics. There’s a chance to repair some of the political damage on Wednesday, when the President delivers the annual State of the Union speech. “He’s got to convince the American people that [jobs are] his number-one focus,” Jason Johnson, a professor of political science at Hiram College in Ohio, tells The Hill today. Call us crazy, but opening what surely would be a hornet’s nest at this late date with questions of Bernanke replacements doesn’t look all that savvy at this juncture.

In any case, clarity has become a top priority for the administration. “It’s not clear what Obamanomics is,” says Robert Atkinson of the Information Technology and Innovation Foundation, via today’s L.A. Times. “That does hurt the administration. It becomes harder to convey a vision of where you want to go.”

It’s unlikely that that the Democrats would raise the bar significantly in this climate by putting the kibosh on Bernanke’s appointment, which the President wholeheartedly endorsed last summer. Throwing Ben to the sharks now is problematic for the White House on a number of fronts. Never say never, but political considerations alone strongly suggest that Bernanke will be confirmed.

But let’s imagine that the unimaginable happens and Bernanke ends up at his desk back in Princeton. What does that mean? One thing’s for sure: interest rates still aren’t likely to rise any time soon, and certainly not sharply. The President and the Senate Democrats, assuming it comes to this, would favor a dovish Bernanke replacement. Heck, even Goldman Sachs (GS) is saying that raising rates now would be a “disaster.” No big surprise: Financial institutions aren’t inclined to bite the hand that feeds them. An absurdly steep yield curve is the mother of all punch bowls for minting profits these days on Wall Street.

Meanwhile, back in Washington, it’s going to be hard to throw Bernanke overboard when the political risk that would accompany such a move is likely to be harsh. Deciding if Bernanke is in fact the right man for the job is another question, but who says economics has anything to do with these decisions?

About James Picerno 894 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

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