Bernanke confirmation runs into resistance in Senate

Some key lawmakers in the Senate are saying they will vote against the Bernanke confirmation. The Fed chairman’s term expires at the end of this month.

The reappointment of Federal Reserve Chairman Ben Bernanke, whose term expires at the end of this month, has unexpectedly bogged down in the US Senate.

Although many Fed observers still expect Mr. Bernanke to be confirmed for another term next week, some key senators are now announcing they will vote against him.

The anti-Bernanke senators say that the Fed failed to police the banks. Some Democrats complain that Bernanke was appointed by the Bush administration, which they want to blame for the economic collapse.

To some supporters of Bernanke – an authority on the Depression – the opposition is an example of how Democrats are reacting to the Scott Brown victory in Massachusetts. The Bernanke backers, meanwhile, say that he saved the US economy from an even worse downturn and deserves reappointment.

The brouhaha over Bernanke’s nomination comes right before the Fed meets to vote on interest-rate policy next Wednesday. America’s central bank is expected to leave short-term interest-rate policy unchanged.

It’s not clear if the vote on Bernanke will take place by then.

The prospect that the Fed chairman might not have the votes in the Senate is unsettling to some stock-market investors. If he is not confirmed, they expect the US dollar to fall, interest rates to rise in the bond markets, and the stock market to tumble. On Friday, the Dow Jones Industrial Average dropped 216.90 points after falling 335.55 points the prior two days.

“The appearance of outright political interference at the Fed would result in a very negative reaction in the markets,” says Jeffrey Kleintop, chief market strategist at LPL Financial in Boston.

Many Fed-watchers worry that foreign investors might decide to move their money to safer havens.

“Investors abroad will think we’ve lost our minds,” says former Fed governor Lyle Gramley in Washington. “It’s the last thing we need with our fragile recovery.”

On Friday, two senators – Sens. Barbara Boxer (D) of California and Russ Feingold (D) of Wisconsin – said they would vote against Bernanke.

In a statement, Senator Boxer said she had a lot of respect for the Fed chairman. But, she added, “it is time for a change – it is time for Main Street to have a champion at the Fed.”

They join two other Democrats and Sen. Bernard Sanders of Vermont, an independent, in opposing Bernanke’s confirmation. Some are against Bernanke since he supported the giant investment banks, including Goldman Sachs. One of the Democrats is Sen. Byron Dorgan of North Dakota, who said Thursday he would vote against Bernanke because the Fed has refused to release the names of the investment banks that borrowed money from the central bank during the worst of the financial meltdown.

In addition, the vote on the nomination is currently on hold because two Republicans – Sens. Jim DeMint of South Carolina and David Vitter of Louisiana – want the Senate to first vote on a bill to require an audit of the Fed. Senator Sanders has also put a hold on the nomination.

On Friday, however, Senate majority leader Harry Reid issued a statement saying that he would vote for Bernanke. But his support is not unconditional, he added.

To avoid a filibuster, Bernanke’s nomination will need 60 votes.

To some observers, the anti-Bernanke votes are indications that some politicians are worried about their seats in the wake of the Scott Brown victory in Massachusetts.

“There is an anti-incumbent mentality echoing through Main Street and now through the corridors of Washington,” Mr. Kleintop says. “Now the senators are worried about that sentiment and if it means they will still be around after November.”

For its part, the Obama administration continues to support the nomination of Bernanke, a Republican. President Obama has “a great deal of confidence in what Chairman Bernanke did to bring our economy back from the brink,” deputy press secretary Bill Burton said Friday.

If the administration is unable to get the votes for Bernanke, Mr. Gramley expects that the Fed chairman would resign and Donald Kohn, currently the vice chairman, would temporarily take the reins.

Uncertainty over who would replace Bernanke would not be good for the markets, says Douglas Roberts at Channel Capital Research in Shrewsbury, N.J. “How long it dragged out could be an issue,” he says. “The key thing is the uncertainty.”

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