Marketminder: Ben There, Done That. Now Let

Story Highlights:

- 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 arent the be-all, end-all for the world economythis 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.
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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. Bernankes term expires on January 31stand whether or not hell return to play again, sits in the Senates 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, its 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 electionsand the Fed heads 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 arent the be-all, end-all for the world economy. Its global liquidity, or lack thereof, that matters most, and thats 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 dont think Bernankes been perfectcollegiality is no substitute for substantive leadership. Hes made mistakes we wish he hadnt (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 doesnt reconfirm him, we could end up with someone much worse (we hear Pee-wee Herman isnt getting much work these days). However, there are undoubtedly much more qualified candidates out there. Still, it doesnt make sense to waste time ruminatinghes likely to get reconfirmed, and at least that spares us near-term market volatility over Pee-wee Hermans confirmation hearings.

Ultimately, the political posturing surrounding Bernankes confirmation will likely turn out to be a non-event. The market does tends to prefer the devil they knowand likely, so will Congress. Bernanke may not inspire full confidence, but at least we know what to expect.

Disclaimer: This article reflects personal viewpoints of the author and is not a description of advisory services by its author"??s employer or performance of its clients. Such viewpoints may change at any time without notice. Nothing herein constitutes investment advice or a recommendation to buy or sell any security or that any security, portfolio, transaction or strategy is suitable for any specific person. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.