Prospects brighten for Fed Reserve chairman Bernanke

WASHINGTON - A defeat of Federal Reserve Chairman Ben Bernanke's quest for another four-year term could raise the risk of a "double dip" recession if political jousting over a successor were to drag on for months, economists warn.

But Bernanke's prospects appeared to brighten yesterday, with three more senators, including Republican leader Mitch McConnell of Kentucky, predicting he'll be confirmed. A vote is expected later this week.

Still, the chance of Bernanke's defeat has unsettled Wall Street, contributing to last week's 4 percent loss in the Dow Jones industrial average, its worst performance in 10 months. If Bernanke were rejected, uncertainty over a successor would further roil global markets, at least in the short run.

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.

Economists who fear a double-dip recession, in which the recovery would collapse into another recession, regard it as a worst-case scenario. But they don't rule it out, either.

Lynn Reaser, chief economist for the National Association for Business Economics, is among them. She sees the likelihood of a double-dip as less than 50 percent. "It will become more acute if there are delays in confirming a successor," she says, noting that the economic recovery remains fragile, with spending still weak, credit tight and job creation scarce.

The Fed chief's term expires Sunday. If Bernanke isn't confirmed by then, Vice Chairman Donald Kohn is expected to step in as chairman and run the central bank temporarily. - AP