Bernanke confirmation shakier as more Democrats defect

By Reuters Staff
January 22, 2010

By Thomas Ferraro and Pedro da Costa

WASHINGTON, Jan 22 (Reuters) – Ben Bernanke’s nomination for a second term as U.S. Federal Reserve chairman, once seen a sure thing, appeared increasingly under threat on Friday after two Senate Democrats said they would vote against it.

“I believe there will be the votes to confirm him, but it’s going to be very close,” a senior Democratic leadership aide said.

With the U.S. job market in disarray, voters angry at Wall Street firms and members of Congress worried about their re-election in November, the Fed and its chairman have become targets for discontent.

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 undecided.

Several Republicans also oppose him and some senators have moved to block his confirmation, forcing Senate leaders to secure a super-majority of 60 vote in the 100-member chamber to move the nomination.

“It is time for Main Street to have a champion at the Fed,” Boxer said. “Our next Federal Reserve chairman must represent a clean break from the failed policies of the past.”

Senate Majority Leader Harry Reid, a Nevada Democrat in a tough campaign for reelection, has not said publicly whether he would vote to confirm Bernanke, whose four-year term at the helm of the U.S. central bank expires on Jan. 31.

Reid met with Bernanke on Thursday to discuss how to best bolster the ailing economy and said afterward he wanted to hear more on how the Fed chairman would go about it.

Assistant Senate Democratic Leader Richard Durbin is “undecided” on Bernanke, a senior party aide said.

Large U.S. banks, seen as the source of a financial crisis that punished the economy with the deepest recession since the 1930s, have come under pressure from Washington for a quick return to big profits and 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 appear taking any stand that benefits Wall Street.

That concern has undercut support for Bernanke, adding another element of uncertainty to a U.S. stock market that has already been under pressure this week.

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.

“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.

POPULAR ANGER

Because of its leading role in the country’s economic leadership, the Fed has taken a lot of heat for what critics say were key missteps, including lax regulation and loose oversight in the years before the crisis broke.

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.

But doubts weighed on Wall Street, which credits him for stabilizing the financial system with creative new policies that included 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, in this case Donald Kohn, would serve in the “absence” of the chairman, but absence is not defined.

Some experts have said it’s possible the board could name Bernanke to serve as chairman on an acting basis. He could also continue to lead the Fed’s policy-setting group, the Federal Open Market Committee.

“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. (Additional reporting by Alister Bull and Tim Ahmann; writing by Pedro Nicolaci da Costa; Editing by Padraic Cassidy) ((For more stories on Fed policy, please double click on [FED/AHEAD])) ((pedro.dacosta@thomsonreuters.com; +1 202 898-8300; Reuters Messaging: pedro.dacosta.reuters.com@reuters.net))

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