Bernanke Triumphs Over Opponents
Federal Reserve Chairman Ben Bernanke was confirmed by a senate vote of 70-30 last Thursday. United States President Obama and his allies in the Senate put pressure on several senators to get the 60 vote super majority necessary to defeat Bernanke’s opponents. Democrats supported Bernanke by 47-11 and the Republican vote was 22-18 in favor of confirmation. Many economists and experts have decried the politicization of the Fed which has traditionally been politically neutral and independent. Chris Krueger of Concept Capital stated; “The politically neutral and independent Fed has really been politicized this week, probably to its detriment.” Lawmakers who ultimately supported Bernanke said they were influenced by the original approaches taken by Bernanke to avoid a more serious financial meltdown. Michigan Democrat Carl Levin, said; “Chairman Bernanke’s performance in addressing the economic crisis and his current efforts to significantly enhance financial regulation to help prevent future crises outweigh his past mistakes.”
Exit Strategy Bernanke’s Biggest Task
Bernanke’s biggest task will be to decide when to dismantle the emergency measures used to address the financial crisis. For the past few months speculation has been rampant on when the Fed will raise interest rates. Every piece of positive US data has prompted speculation of a rate increase. Last Wednesday after a two day meeting the Fed announced that interest rates would remain “exceptionally low” for “an extended period.” Public anger over expensive bank bailouts has dominated the political landscape running up to the mid term 2010 elections. Public anger could lead to legislation which would strip the Federal Reserve of its supervisory role over banks and its consumer protection responsibilities.
Fed to Remain Independent
Investors, including foreign investors had worried that Bernanke’s confirmation difficulties could lead to increased congressional meddling in central bank decisions and monetary policy. Financial markets including currency markets were relieved by Bernanke’s confirmation believing that the confirmation limits congressional leverage over the Fed and its decisions. Dan Fuss of Loomis Sayles in Boston expressed the view of many when he said; “You trust the central bank or you don’t. This confirmation takes that uncertainty away for many.”
Congress May Curb Fed’s Power
Bernanke supporters and opponents voiced concerns. Senator Christopher Dodd, a Bernanke supported has criticized the Fed for lax oversight of banks. Dodd stated; “If I had been voting solely on the performance in ‘07, I would have voted against him.” Dodd and Senator Richard Shelby of Alabama and a Bernanke opponent want to strip the Fed of its supervisory power over banks. Shelby stated, “We should seriously consider, and we’re talking about, taking the regulatory power away from the Fed, let them concentrate on monetary policy. There’s a lot of unrest in the country, and a lot of people do not believe that the Fed should have been the central intervener in too-big-to-fail” financial firms.”
