Bernanke will likely secure another term as Fed chairman, though many will bemoan a narrow victory could politicize the Fed head.
In reality, the Fed head is already a political creature. However, policy decisions made by the Fed aren't the be-all, end-all for the world economy—this is why individual nations can make policy mistakes, but the effects can get muted globally.
There are undoubtedly much more qualified candidates than Bernanke out there, but at this juncture in the economic recovery, a new, untested Fed head would inject uncertainty that could weigh on stocks.
As the New Orleans Saints go marching to victory (and the Super Bowl), a reappointment win for Federal Reserve chairman Ben Bernanke is still up in the air. Bernanke's term expires on January 31st—and whether or not he'll return to play again, sits in the Senate's hands.
Though Bernanke has White House backing, the Senate needs to confirm his reappointment. Following efforts by some senators to block his re-nomination, Bernanke needs to secure a super-majority of 60 votes just to proceed to the confirmation vote. Once the vote is set, a simple majority confirms his reappointment.
With a vote likely at the end of this week, so far about 35 senators have publicly committed to voting for Ben, with 17 opposed. More than a few senators are dragging their feet over the down-to-the-wire vote, some likely for political reasons. In our view, it's highly likely Bernanke will be re-confirmed (though, it may be a squeaker)—and many will bemoan the narrow victory could handcuff the Fed to the political will of those who supported him.
And no kidding. In reality, the Fed head is already a political creature. Sure, it would be better if the position were truly independent, but getting the job hinges on political appointment (and reappointment). If Bernanke (or anyone else) wants reelection, he will tend to do what annoys his constituents least, particularly leading up to elections—and the Fed head's constituents are the president (who nominates him) and the Senate (who confirm him).
However, this may matter less than many fear. Keep in mind that though the US Fed head is an important figure, policy decisions made by the Fed aren't the be-all, end-all for the world economy. It's global liquidity, or lack thereof, that matters most, and that's influenced by central banks around the globe. This is why individual nations, even one as big as the US, can make policy mistakes, but the effects can get muted globally. And no matter how heavy the political pressures are at home, it would be hard for the US to go decidedly in one radical policy direction if the world is going another.
We don't think Bernanke's been perfect—collegiality is no substitute for substantive leadership. He's made mistakes we wish he hadn't (the uneven and disastrous handling of Lehman Brothers and the bungling of AIG are just two examples). And, certainly, in the remote chance the Senate doesn't reconfirm him, we could end up with someone much worse (we hear Pee-wee Herman isn't getting much work these days). However, there are undoubtedly much more qualified candidates out there. Still, it doesn't make sense to waste time ruminating—he's likely to get reconfirmed, and at least that spares us near-term market volatility over Pee-wee Herman's confirmation hearings.
Ultimately, the political posturing surrounding Bernanke's confirmation will likely turn out to be a non-event. The market does tends to prefer the devil they know—and likely, so will Congress. Bernanke may not inspire full confidence, but at least we know what to expect.