Bernanke Confirmation Headwinds Increasing

The party line is that Ben Bernanke’s confirmation for a second term as Fed chief is a shoe-in, although he might face an unseemly amount of roughing up, like having to step down briefly if the senators who plan to put a hold on his vote succeed in delaying it beyond the end of January. And then there is also that wee inconvenience that Congress has woken up to the fact that the electorate is seriously unhappy about bailouts without accountability and reform, and the Fed allowed the Treasury to circumvent normal budget approval processed (as Willem Buiter has put it, the Fed acted as a “quasi-fiscal agent” of the Treasury). So a little, perhaps a lot, of curtailment of the Fed’s expanded role is in the offing.

But the sands are shifting against Bernanke. A mere month ago, the idea that he would face a filibuster was inconceivable. Similarly, no one would have thought he would have 30% of the Senate Banking Committee vote against his confirmation.

But what is particularly telling is that sentiment is continuing to erode. From Politico:

Six Republicans and one Democrat on the Senate Banking Committee voted Thursday against Ben Bernanke’s nomination to a second four-year term as chairman of the Federal Reserve — signaling to some Fed watchers that President Barack Obama’s pick could be in more trouble than previously thought.

“It’s not the foregone conclusion it was a couple of weeks ago,” said Brian Gardner, a bank analyst with Keefe, Bruyette & Woods.

Two aspects of the two-hour debate that preceded the committee vote struck Gardner as worrisome for Bernanke: the unenthusiastic — even apologetic — tone from some of the senators who voted yes and a dispute over the Fed’s refusal to release documents about the bailout of insurance giant American International Group to senators on the committee.

Sens. Jim Bunning (R-Ky.) and David Vitter (R-La.), in particular, complained about the Fed’s lack of transparency. In the case of AIG, some banking committee staffers were allowed access to documents, Bunning said, but individual senators and the public were not allowed to see the information because the Fed said it was “protected.”

That spat could have legs, Gardner said, and if it resonates with a public already fuming at the Fed, it could sway the votes of yes-leaning senators.

Intrade, however, continues to show the Bernanke contract being priced at near-certainty levels. But we must note that that contract is thinly traded, and as Barry Ritholtz has pointed out, prediction markets have not infrequently been spectacularly wrong.