Will Bernanke Win Reappointment for Second Term?

Federal Reserve Chairman Ben Bernanke will very likely win reappointment next year, according to an influential poll released on Friday, hardening market expectations that might prove costly for President Barack Obama to disappoint if he chose someone else.

Pablo Martinez Monsivais / ASSOCIATED PRESS Federal Reserve Bank Chairman Ben Bernanke

The July Blue Chip survey of professional economists found an 80 percent likelihood that Bernanke will be asked to stay on for another four years when his current term at the head of the U.S. central bank expires on Jan. 31, 2010. Some worry that changing the Fed chairman as the economy battles the most severe recession in a generation could spook financial markets.

Investors might shun dollars and U.S. bonds because of the uncertainty a change could create, driving up U.S. borrowing costs and negatively impacting growth and jobs.

Obama, when asked about his Fed pick last month, praised Bernanke, but declined to tip his hand on whether he would grant the former Princeton University economics professor another term.

"He has done a fine job under very difficult circumstances," Obama told a news conference on June 23. "I'm not going to make news about Ben Bernanke."

A Reuters poll last month found that economists rated Bernanke at 8 out of 10 for his handling of the crisis, compared with a slightly lower grade of 7 out of 10 when the poll was conducted in mid-December.

The Fed has cut interest rates almost to zero and pumped a trillion dollars into credit markets to fight panic after the September failure of investment bank Lehman Brothers.

"Speculation is intensifying on the reappointment of Fed Chairman Bernanke. ... The odds favor reappointment but it is not a 'sure thing,"' wrote Societe Generale economists Stephen Gallagher and Aneta Markowska in a note to clients.

They said that if Obama wanted to quell market speculation he would decide sooner rather than later. But this balance will tip away from Bernanke if the White House feels that policy steps so far to restore growth are not working fast enough.

"A faltering economic or financial market could hasten a change, not so much as a disapproval of Bernanke, but as a way to inject fresh air into the policy responses and in turn encourage hope for change," they said.

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In addition, Bernanke was appointed by Republican President George W. Bush in 2006, replacing long-time Fed chief Alan Greenspan, who was also a Republican, and Democrat Obama may prefer to pick a new Fed chairman from his own party.

If that proved to be the case, the Blue Chip poll of around 50 top forecasters ranked former U.S. Treasury Secretary Lawrence Summers, who is now a top Obama economic adviser, as the most probable person to get the job.

Ranking behind Summers in the poll as a possible choice for the chairmanship were Janet Yellen, president of the San Francisco Federal Reserve Bank; Christina Romer, chairwoman of the White House Council of Economic Advisers; and former Fed Vice Chairman Alan Blinder.

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