How the Fed chair race became a public circus, and why it matters

August 30, 2013
The race for Fed chair this summer has been a circus, but it hasn't exactly been the greatest show on Earth. (Madeline Marshall/The Washington Post)
The race for Fed chair this summer has been a circus, but it hasn't exactly been the greatest show on Earth. (Madeline Marshall/The Washington Post)

No, you're not imagining it. The very public battle over who will be the next chairman of the Federal Reserve is louder and uglier than any in history. The question now is what it will all mean for the person who ends up in the job--and the institution he or she leads.

There's no question that the volume has been turned up to 11 on the debate over whether Larry Summers, the controversial former treasury secretary or Fed vice-chair Janet Yellen or another candidate should guide U.S. monetary policy for the next four years. There are the dueling op-eds over who ought to be in the job. The New York Times editorial board strongly endorsed Yellen; some quick searching of the paper's archives suggests it has never before made such an endorsement before a Fed chair was even nominated. So did Bette Midler. Just yesterday, Richard Trumka, the head of the AFL-CIO, came out in favor of Yellen as well.

Consider the last time a president was selecting a new Fed chair, in the summer of 2005. It was known that Alan Greenspan would soon be stepping down as chairman of the Federal Reserve, that President Bush would need to appoint a replacement, and that two leading candidates for that choice were Ben Bernanke and Glenn Hubbard. If you search the Nexis database from June through August of that year for "Bernanke," "Hubbard," and "Greenspan," there were 27 articles in major newspapers.

Do the equivalent search today, for "Summers," "Yellen," and "Bernanke," and you turn up a whopping 143 articles.

Essentially, the Fed chairmanship has now come under the kind of This Town media-political-hothouse that has existed in politics coverage for some time now. What the creation of Politico did for the 2008 presidential race, the rise of the likes of Business Insider, and, yes, Wonkblog (and the desires of more traditional outlets to compete in the faster-paced media landscape) have done for the 2013 selection of a Fed chair.

The second factor is some mismanagement by the White House. In the spring, an expectation was building on Wall Street and in the media that Yellen was a near-certain pick for the job. There were major profiles written of her, based on that premise, in the Wall Street Journal and New York Times. Fed watchers confidently predicted to their clients that Yellen would end up in the job. The White House, as best as I can tell, did little or nothing to push back against that mounting expectation. Therefore, the rise of Summers as the prime candidate for the job this summer came as a surprise to many people.

"This is the last thing the White House wanted," said Tony Fratto, a Bush administration veteran who worked on the nomination of Bernanke in 2005 and is now managing partner of Hamilton Place Strategies. "They were completely surprised that they would be drawn into a public fight over the summer on this.  They did expect that they'd have to do some delicate hand holding and messaging in the fall when the decision was made, but not in the summer and not this way."

The third factor is Summers himself. He is, quite simply, a bull in every china shop he has happened to enter. Drama just follows him, from his time at the World Bank to the Clinton administration to the Harvard presidency. Those who admire his rigorous way of thinking and blustery style of debate view him as a uniquely talented, once-in-a-generation economic thinker; almost everyone else finds him to be a jerk. And many of those people who view him as a jerk are speaking up now in a way they never would for some of the candidates who might adopt a very similar policy approach but have fewer rough edges. Add the fact that some of his most public clashes have been with women and his leading opponent for the job would be the first female Fed chief, and the situation was ripe for controversy.

And the final factor is this reality: The Federal Reserve has, since the crisis, become more important player in the economy and financial system than it was before. Even apart from the 2008 crisis-era bailouts and interventions, since then it has expanded its balance sheet almost five-fold and been the one government entity in Washington trying to do something about high unemployment. Its power to oversee financial institutions was greatly expanded by Dodd-Frank legislation. Bernanke started in the Fed chairmanship aiming to make it a more anonymous, technocratic role, in contrast to Alan "The Maestro" Greenspan; three years later, he was appearing on "60 Minutes" and was Time Person of the Year. Everyone cares more about who the next Fed chair is because they should care more about who the next Fed chair is.

Add it all up, and, as Fratto puts it, "the current transition is a perfect hot mess."

The question is, does it matter? It increasingly appears that President Obama will nominate Summers sometime in the next few weeks, and that he will be confirmed, though with no small amount of grumbling by many liberal and some conservative senators in the process. What will that mean?

First, there's the cost for the White House. If it were to select a "boring" candidate for the job, like Yellen, Don Kohn, or Roger Ferguson, there might be the usual bumps and bruises in the confirmation process, but there would never really be a doubt that the Senate would come up with the votes.

Summers is decidedly un-boring. The opposition to him within the Democratic caucus, especially among women, means that president and his aides will have to spend more time massaging and persuading those senators reluctant to be a "yes" vote on someone much of the Democratic base just doesn't like very much. At best, this will be a distraction at a time that a high stakes fiscal stand-off over funding the government is re-emerging; at worst, it will require horse-trading that could cost political capital they might prefer to save to push another tough vote.

For the Fed, the equation is a little different. Based on conversations with many Fed-folks at a conference in Jackson Hole last weekend, I can assert with confidence that people at the central bank are none-too-thrilled with the loud public debate over who their next chairman will be. And it surely will damage the ability of the next chairman, whether it's Summers or someone else, to maintain an image of the aloof, politically neutral, wise, man-behind-the-curtain Fed chair that has been part of the job's image for generations.

At the same time, go back to the reasons listed above about why this has become such a spectacle. Part of it is the White House's strategy and part of it is Summers's personality. But other parts, the new media environment and the more prominent role of the Fed, aren't going away.

In other words, we may be entering an era where the Fed chairman job is as much a lightning rod as any other major appointment. In that case, the strange Summers vs. Yellen debate of the summer of 2013 is less an aberration, and more a harbinger of what is to come.

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