By Peter Schroeder - 10/14/12 10:00 AM EDT
Mitt Romney’s promise to replace Federal Reserve Chairman Ben Bernanke if elected president is stirring anxiety among some financial analysts — who fear such a move could send the nation’s markets tumbling.
Romney, throughout his White House campaign, has argued he knows what needs to be done to get the economy running at full steam.
"There's a view that the economy cannot sustain itself, that it's really the Fed that is fueling economic growth, and that a post-Bernanke Fed is just not as favorable to growth," said Brian Gardner, senior vice president of Washington research at Keefe, Bruyette and Woods.
Gardner wrote in a note to clients Thursday that a Romney win could lead to a market decline, operating on the premise that Bernanke’s vow of long-term economic stimulus would then be short-lived.
The Fed chairman has not won any friends among Republicans for his efforts to boost the economy, which have included three rounds of "quantitative easing."
The massive bond purchases have sent stock markets soaring, but conservatives fret that the Fed's rapidly-expanding portfolio is going to be a nightmare to unwind and could result in severe inflation.
Bernanke's Fed agreed in September to buy $40 billion of mortgage bonds a month, and to continue doing so even after the labor market picks up the pace.
The Fed has also stated it expects to keep interest rates near zero until mid-2015.
But a Romney win could throw those plans into question, and signal to markets that the days of easy money are dwindling.
There are several variables still at play, however.
Even if Romney wins and replaces Bernanke, he will only do so at the beginning of 2014. By then, the economy could be in much better shape.
Furthermore, replacing Bernanke does not automatically alter the trajectory of the Fed, since it sets policy based on the votes of the 12 members of the Federal Open Market Committee (FOMC).
The seven Fed governors are joined by a rotating group of five heads of the regional Fed banks.
The current members of the FOMC approved the latest round of “quantitative easing” by a vote of 11-1, so any Romney replacement as Fed chairman would have some convincing to do to change course.
Romney and Republicans have accused President Obama of stifling economic growth with broad new regulatory initiatives like the Dodd-Frank financial reform law.
Romney even suggested to donors that markets would be immediately relieved if he were to succeed in his bid for the White House.
"If it looks like I'm going to win, the markets will be happy. If it looks like the president's going to win, the markets should not be terribly happy," Romney told donors at a private fundraiser in May.
"My own view is, if we win on November 6th there will be a great deal of optimism about the future of this country. We'll see capital come back, and we'll see — without actually doing anything — we'll actually get a boost in the economy."
The secretly-recorded video was obtained and published by Mother Jones magazine in September.
Romney has not been as critical of Bernanke’s actions as some of his GOP compatriots, but he has publicly vowed to replace him at the first opportunity.
"I would like to select ... a new person to that chairman position, someone who shared my economic views, someone that I thought was sympathetic to the needs of our nation," Romney told Fox Business in August.
But Gardner pointed out that roughly a week after Romney boosted his candidacy with a strong showing in the first presidential debate, financial markets have not been exuberant.
Instead, the Dow Jones Industrial Average has lost over 300 points, or nearly 1.5 percent.
"We had a pretty clear sign last week that Romney's in a better position, and markets should have rallied on that. But they sold off instead," he said.
Andrew Busch of BMO Capital Markets, who advised John McCain during his 2008 presidential campaign, acknowledged that a change at the top of the Fed could create some volatility. But he maintained that Romney would still be a net plus for financial markets.
“When they were talking about replacing [Former Fed Chairman Alan] Greenspan, the market’s reaction for a couple of days was pretty negative. It stabilized, and then we came back,” he said.
Rather, Romney’s vows to overhaul the individual and corporate tax codes would dwarf any concern at the Fed, according to Busch.
“They really like his tax plan, and that’s the key,” he said. “Whatever you think is going to happen with the Fed will likely be outweighed by the coming tax reform that’s going to be done under Romney.”