Bernanke Gains More Senate Support, Plans Additional Meetings

By Scott Lanman, Joshua Zumbrun and Vivien Lou Chen

Jan. 26 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke gained more support from U.S. senators for a second term and prepared to work around a two-day policy meeting that starts today to visit lawmakers.

Democrats including Missouri’s Claire McCaskill and Maryland’s Barbara Mikulski were among the senators who said yesterday they would vote for the 56-year-old Fed chief or were leaning in his favor, along with Utah Republican Robert Bennett. Republicans Tom Coburn of Oklahoma and Florida’s George LeMieux said they would decide after meeting with Bernanke this week.

Stocks rebounded from the biggest three-day decline since March amid growing confidence Bernanke will be confirmed. The number of likely Bernanke supporters rose to 42 from 31 the day before, while about 17 senators remained opposed or leaning against the former Princeton University economist.

“I encouraged Chairman Bernanke to meet with as many members as possible,” Senate Majority Whip Richard Durbin, an Illinois Democrat and supporter, said after they met. “He has an Open Market Committee meeting this week that he said he can’t miss and I said, ‘Well, I sure don’t want the economy to come down, that’s not good for either one of us.’ So he’s going to try to balance that but spend as much time on the Hill as he can.”

The Standard & Poor’s 500 Index advanced 0.5 percent to 1,096.78 yesterday in New York, trimming a 1 percent gain after a report showed sales of existing homes fell more than estimated. Wavering support for Bernanke among some Democrats helped drive stock prices lower on Jan. 22, triggering a 2.2 percent plunge in the S&P 500.

Fed Independence

The timing of the confirmation vote, which may occur just before Bernanke’s four-year term ends on Jan. 31, and the controversy it has generated in the Senate highlight the risks to the central bank’s independence at a time when policy makers are considering their strategy for an eventual exit from record low interest rates.

“The fact he’s taking a hit on so much of this and so many senators think they can score short-term political points from beating up on him” means the U.S. risks losing “the benefits of having an independent central bank,” said Anil Kashyap, a former Fed economist who teaches at the University of Chicago.

“The impulse to use Mr. Bernanke as a political punching bag raises the specter that, instead of doing the right thing, Congress may seek to pressure the Fed to print its way out of this crisis,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an opinion piece posted on the Wall Street Journal’s Web site.

Interest Rates

Bernanke and fellow members of the Federal Open Market Committee are likely to keep interest rates close to zero after their meeting ends tomorrow and to repeat a pledge to leave borrowing costs unchanged for an “extended period,” economists said.

Bernanke has drawn fire from some lawmakers for lax bank regulation prior to the financial crisis and for bailouts of firms such as American International Group Inc. The Democratic party’s loss of a seat in Massachusetts last week added to pressure on senators facing re-election at a time of rising voter anger over the economy.

“Both Democrats and Republicans have run for cover, given the result of that Massachusetts election, and sought to make a populist case against Wall Street and by association the Fed chairman,” said former Fed economist David M. Jones, 71, president of Denver-based DMJ Advisors and author of four books on the central bank.

Split With Obama

Last week, two Democrats who face re-election this year, Barbara Boxer of California and Russ Feingold of Wisconsin, said they will oppose Bernanke, splitting with President Barack Obama, who nominated him for a second term in August. Bernanke, a Republican, was first picked by President George W. Bush.

Opponents including John McCain of Arizona, who lost the 2008 presidential election to Obama, blame Bernanke for failing to avert the financial crisis that plunged the nation into the worst recession since World War II.

“While I appreciate the service that Chairman Bernanke has performed as Federal Reserve Chairman, I believe that he must be held accountable for many of the decisions that contributed to our financial meltdown,” McCain said yesterday in a statement.

Durbin and other supporters, including Christopher Dodd, the Senate Banking Committee chairman, say the Fed’s unprecedented actions to pump money into the economy saved the nation from a more severe recession after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.

‘Darkest Days’

“I have some concerns about some of the past decisions that have been made, but there’s one thing I know for certain: During the darkest days of this economic recession, when this country was teetering on a depression, this man and his leadership at the Federal Reserve made a difference,” Durbin said yesterday after meeting with Bernanke.

“I thought he was very frank and candid in acknowledging that mistakes were made at many different levels, including in Congress,” Durbin said.

Bernanke pledged “transparency and accountability” at the central bank, especially on the bailout of New York-based insurer AIG, while reiterating his opposition to Congressional audits of monetary policy, Durbin said. The House Oversight Committee holds a hearing this week after getting 250,000 pages of documents from the New York Fed on the AIG rescue.

Under Senate rules, Bernanke’s supporters need 60 votes for a motion to limit debate on the confirmation, which then would need a majority.

Durbin said some Democrats who oppose Bernanke will vote to end debate, allowing his nomination to move forward. In addition, “We will need some Republican support.”

Democrat Sheldon Whitehouse of Rhode Island has “serious concerns about” Bernanke yet “will not join any filibuster” on the nomination, according to Matt Thornton, a spokesman.

To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net.