Will Ben Bernanke be reconfirmed as the chairman of Federal Reserve? As markets start a new week of trading that question remains open even as Dr. Bernanke’s term is due to expire in just six days from now. The confirmation which seemed merely a formality just a few weeks ago has turned into high drama on Capitol Hill after several Republican and Democratic senators voiced their opposition to Dr. Bernanke’s second term as chairman.
Chairman Bernanke has become the latest victim of anti-incumbent sentiment sweeping across the American political landscape, as the electorate appears to have grown extremely frustrated with the policy response to the worst economic recession in the post war era. Of the 35 senators due for reelection this year, Dr. Bernanke enjoys support of only 8, opposition from 9 and no decision yet from the other 19.
Over the weekend Senate Republican leader Mitch McConnel l predicted that the chairman will have “bipartisan support in the Senate” assuaging some concerns that Dr. Bernanke may not get the requisite 60 votes to avoid a filibuster of his nomination. The news has sent risk FX a bit higher during the Asian session as the prospect for political turmoil in US monetary policy appears to have diminished.
Still, Dr. Bernanke’s reappointment is far from a done deal and should it face additional challenges as the week progresses, it will no doubt trigger further risk aversion flows as financial markets grapple with the uncertainty of the outcome. Although the dollar generally benefits during periods of market stress attracting safe harbor flows, this time the dynamic may be completely different. Currency markets will likely react very negatively to the vacuum in leadership in US monetary policy if Dr. Bernanke’s nomination fails. Last Friday’s unusual market flows that saw equities fall and EUR/USD rise could become a much more common occurrence the longer the Bernanke nomination remains in doubt with the euro rather than the dollar becoming the choice for safety as traders seek relative stability in an increasingly volatile G-10 universe.
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