Is Ben Bernanke’s Job at Risk?

Reuters today brought up an interesting question:  Could the new president who takes over in 2009 ‘fire’ Ben Bernanke due to missteps as chairman of the Federal Reserve when his term expires in 2010?

In today’s post entitled “Weak Growth, Miscues Put Bernake’s Job at Risk,” Mark Felsenthal and Tamawa Kadoya muse as to reasons that Ben Bernanke might not be reappointed when his term expires, especially if a Democrat (Barack Obama or Hillary Clinton) win the White House in this year’s election.

Richard Gilhooly is quoted as saying, “Much of the fear of recession is based on a confusion, a lack of understanding and a lack of confidence in the policy that is being administered by the Federal Reserve.”

Felsenthal writes, “Ultimately, Bernanke’s success in guiding the Fed will be judged on how short and shallow any U.S. downturn is and whether a recovery is on solid footing by early next year.”

Recall the stunning one-day market drop as a result of a private dinner converstaion with CNBC Anchorwoman Maria Bartiromo:

Maria Bartiromo said Bernanke had told her at a dinner that markets had misconstrued his words to mean the Fed was done raising rates.

Analysts savaged him for disseminating policy comments through an informal conversation. Bernanke later called the episode a “lapse in judgment.”

I remember being extremely confused at that and remember the firestorm that ensued in the financial press as a result.

Further, the authors recall last week’s surprise rate cut when they wrote:

“Most recently, analysts have questioned whether the Fed panicked with last week’s surprise cut in borrowing costs, the steepest reduction in more than 23 years.

When France’s second-largest bank, Societe Generale, announced $7 billion in losses due to unauthorized trades by a single employee the next day, market participants wondered whether SocGen’s efforts to unwind those trades helped push markets lower and had misled the Fed into cutting rates.”

Also, another article today from Yahoo Finance charges that Bernanke and the Federal Reserve are “may be too worried about Wall Street.”

“They clearly cut rates because of the stock market.” says Robert Brusca, chief economists at Fact & Opinion Economics, “I do think the Fed has a made a mistake in placing too much emphasis on the market.”

Beyond these two articles, there were a vareity of offerings from the Financial Media regarding their thoughts, combined with expert opinion, on how right or wrong Bernanke and the Federal Reserve are on the economy and their current course.

It’s interesting to know that his term expires in 2010, and with a potential new administration, Bernanke could be at risk.  Presidents typically do not change the chairman as a political move (Reagan kept Vocker, a Carter appointee, Clinton kept Greenspan, a Reagan appointee).

Nevertheless, if the Fed is blamed for a US recession, it might be not only politically feasibile, but demanded by portions of the electorate for new leadership at the Federal Reserve as soon as possible.