Treasury Secretary Timothy Geithner is warning that a Senate rejection of Federal Reserve Chairman Ben Bernanke's nomination for a second term would lead to "very troubling" reaction from the financial markets.
(AP Photo/Haraz N. Ghanbari)
When President Obama announced last August he wanted Bernanke to return for a second term, his confirmation was expected to be easy. But in recent weeks, several senators have expressed reservations about Bernanke. Those concerns picked up after Republican Scott Brown's win in Massachusetts' special election last week.
Bernanke's term ends at the end of the month.
Worries on Wall Street about Bernanke's chances contributed to a 4 percent drop by the Dow Jones industrial average last week, its worst performance in 10 months.
In an interview with Politico, Geithner praised Bernanke's work at the Fed and said he was confident that Bernanke would be reconfirmed. But he also sounded the alarm when asked about the possibility of his defeat.
"I think the markets would view that as a very troubling thing to the economy as a whole. But, as I said, I don't think they should be uncertain. I think they should be confident because we are very confident he will be reconfirmed," he said.
In recent days, the White House has gotten some good news pointing to Bernanke's confirmation. Over the weekend, more key senators announced they would support the nomination, and they were joined by Sen. Dianne Feinstein (D-Calif.) and Sen. Max Baucus (D-Mont.) on Monday morning.
Mr. Obama and other key players of the administration have also been lobbying on behalf of Bernanke.
5925790But that hasn't stopped the speculation from spooking investors and Wall Street. Lynn Reaser, chief economist for the National Association for Business Economics, told the Associated Press that "all the political angst over the confirmation couldn't have come at a worse time for the economy."
If Bernanke is not confirmed, "Uncertainty over a successor would further roil global markets, at least in the short run," The Associated Press reports. "Anxiety, along with sagging investments, could cause consumers and businesses to cut spending. Joblessness, already at 10 percent, could worsen. And the recovery might fail."
"…even more worrisome for the markets and the economy would be if Bernanke's Senate foes are seen as having meddled with the Fed's independence for political reasons," adds the AP. "The dollar would likely fall. Higher interest rates and inflation fears would follow, stoked by uncertainty and shaken confidence. And all that would probably unsettle consumers and business, making them less likely to spend, hire or invest."
The AP also notes that no Federal Reserve Chairman has ever been rejected and that the most "no" votes for a nominee was 16 against Paul Volcker in 1983.
Geithner, in the interview with Politico, said he understood why Bernanke was having a tough time, saying that the country is "in a moment where people are incredibly angry and frustrated by the damage this crisis caused."
"That's perfectly understandable, and everybody involved in this effort is bearing a lot of the brunt of that frustration and anger," he said.
You can watch more of the Politico interview with Geithner below: