Blog : Lame Duck Time for Bernanke

by Ed Zwirn on August 9th, 2013

Arguably more important to penny stocks and the United States economy than the endless round of political jockeying to replace the current "lame duck" president in the 2016 election is the visible jockeying taking place as Ben Bernanke's term as chairman of the U.S. Federal Reserve Bank comes to an end.

Ben Bernanke's second (and, as Barack Obama has made clear, final) term as Fed chairman ends on Jan. 31, 2014. Investors reacted badly recently when the name of Larry Summers, a noted critic of Bernanke's policy of monetary accommodation, was floated by the White House as a Bernanke successor.

Many investors in penny stocks apparently thought at the time that this was scare mongering meant to pave the way for an easy confirmation for Janet Yellen, who is much less likely to pull the plug.

Now it turns out that the White House was not floating Summers' name at all. In his first presidential press conference since April, Obama said today that he is still considering a range of candidates for the top Fed job, including Summers and Yellen. His remarks in favor of Summers, he says, were simply uttered because the former Clinton treasury secretary was getting "slapped around in the press for no reason... which is a sort of standard Washington exercise I don't like."

In an unusually public vetting for a Fed chairman, the president had said at a recent closed-door meeting with House Democrats that former Fed vice chairman Don Kohn was also under consideration. Also emerging as a possible dark horse candidate to replace Bernanke is TIAA-CREF CEO Roger Ferguson, who was fed vice chair at the time of the 9-11-01 attacks and received high marks for calming financial markets during that crisis (Alan Greenspan was traveling).

A Ferguson candidacy would also prove attractive to everybody who wants the Fed's $85 billion monthly bond-buying program to continue, as his past statements have indicated support, tempered with some skepticism, for this massive quantitative easing.

The president said he will announce his decision in the fall. Bernanke's successor will likely face a charged Senate confirmation process. Assuming that whichever candidate emerges victorious will not want to rock the proverbial boat, this means that investors in penny stocks and small-cap shares should continue for some time to see continued expansive Fed policy backing up their bets.