Ben Bernanke has another ten months in his term as Federal Reserve chairman, but that hasn’t stopped the economic punditocracy from beginning an obsession over who will take charge of monetary policy for the world’s largest economy come February 1, 2014. We at Wonkblog plead fully guilty to this minor obsession.
However, we are also on record here as favoring accountability in punditry. It is not enough to just list the people who might get some consideration for the job (we’re looking at you, The Economist), or to issue vague proclamations about who might be a favorite and who might be a dark horse (OK, we're guilty of that one). If you’re going to spout off and make predictions, attach some numbers! So that’s what we’re going to do.
This is my analysis of various candidates for the Fed chairmanship, and a best guess at the probability they will get the job. I worked to make the odds add up to 100 percent, which was harder than it sounds. (I initially assigned odds such that the total probability added up to nearly 150 percent, which means those rough instincts assigned too-high odds across the board). Herewith, the candidates, the odds, and notes on their strengths and weaknesses.
Janet Yellen, 2-1 (33% probability). Yellen, currently the Fed vice-chair, has higher odds of being selected than any other individual. She is unquestionably qualified, a first-rate economist who has served at the Fed at the highest levels. Her worldview, of viewing high unemployment as the foremost problem facing the U.S. economy at the moment, tends to align with the Obama administration’s (and the president appointed her to the No. 2 spot at the Fed). If she is not selected, it would likely be because of worries that she would be viewed by markets as being too dovish, or soft on inflation, and/or because of worries about whether she is dynamic enough. Would she be effective at the more public-facing aspects of the Fed chairmanship like press conferences and congressional hearings, for example? She has as much experience as anybody with the substantive work of running a central bank and making monetary policy, less so with the political, diplomatic, and communications tasks that are a big part of a modern central banker's job.
Larry Summers, 5-1 (17% probability). Summers is among the most polarizing figures in the world of economic policy. On paper, he is perfect for the Fed chairmanship: He is an outstanding academic economist, a former Treasury secretary, and a former Obama White House adviser. In practice, he has a personal style that has left him with a long list of enemies in Washington and beyond. Obama knows these strengths and weaknesses as well as anyone, having had him just upstairs from the Oval Office as head of the National Economic Council for the first two years of the administration. In weighing Summers for the Fed chairmanship, Obama will have to decide whether his clear strengths overcome his weaknesses, whether his leadership style will work at the consensus-oriented Federal Reserve, and whether he is ready for a potentially tricky Senate confirmation process.
Roger Ferguson, 7-1 (13% probability). Ferguson is a low-key candidate in every way, but that could be just the thing Obama needs if he elects not to appoint Yellen or Summers. The former Fed vice-chair who now leads TIAA-CREF would bring deep experience overseeing the financial sector that is an even bigger part of the Fed’s responsibility than it was pre-crisis. He would be a low-drama, highly competent candidate. The biggest knock on him is that he led Fed bank supervision in the mid-2000s during a period of light-touch regulation that contributed to the crisis.
Stan Fischer, 10-1 (9% probability). Fischer is the outgoing governor of the Bank of Israel, a former No. 2 official at the IMF, and a much-respected macroeconomist (he was also Ben Bernanke’s PhD thesis adviser at MIT). He is held in exceptionally high regard in international economic policy circles. But would Obama appoint a man to a high U.S. government position who served a foreign government in the recent past and was born in Africa (Fischer has been a U.S. citizen since 1976, however). The fact that Fischer worked for the Israeli government, a close U.S. ally much beloved by Republicans, probably helps, but it still may be a bit much for the U.S. political system to swallow.
Tim Geithner, 11-1 (8% probability). Geithner recently stepped down as Treasury secretary and has said in numerous interviews that he does not want the Fed job. I believe him. He also just signed a seven-figure book contract and is selling his house in Bethesda. Those are not the actions of a man trying to preserve viability to take on a big new job in ten months. But the president has great confidence in him, and if Obama decides no other candidates are right, and gives Geithner the hard sell, one can’t completely take him out of the running.
Ben Bernanke, 11-1 (8% probability). Similarly to Geithner, it’s pretty clear that Bernanke is eager to return to a quiet, intellectual life. It has been a long seven-plus years of crisis-fighting, and Bernanke has never been one to relish the trappings of power; he enjoys a quiet evening with his wife more than he does going to a flashy Georgetown party. But at the same time, the possibility that Obama will decide he needs Bernanke to stay and gives him the hard sell cannot be ruled out entirely.
Don Kohn, 20-1 (5% probability). Kohn would be quite a solid candidate, particularly if Obama decided the more prominent candidates weren’t quite right. His four decade career at the central bank included time as Alan Greenspan’s closest adviser and as Bernanke’s vice chairman. He retired in 2010, but has remained deeply entwined in the economic policy world: He is serving on the Bank of England’s Financial Policy Committee. He may be a bit old for the job at 70.
Jeremy Stein, 30-1 (3% probability). Stein is one of the more intriguing possibilities. A Harvard economist appointed to the Fed board of governors by Obama, he has been a thoughtful contributor to the Fed’s internal debates over whether their quantitative easing policies are causing financial bubbles. He remains a long shot for the chairmanship, though, due to his short experience at high levels of economic policy making. If he were to get the nod, he would be for 2013 what Ben Bernanke was in 2005—a respected academic who came seemingly out of nowhere to ascend to a top job.
Rest of Field, 25-1 (4% probability). We don’t know what we don’t know. Maybe Obama will look beyond the list of candidates that Fed watchers readily toss around and find a Fed chair whose identity is not currently obvious.