Obama’s next Fed chief: Who gets the job if the president wins a second term?

October 8, 2012

Whoever is inaugurated as president Jan. 20 will, in the first year of his term, face a decision that will have a greater impact on the economy than any other single call he will make: Whom to select as chairman of the Federal Reserve.

Ben S. Bernanke’s term ends Jan. 31, 2014, about a year after the president takes office; if the past is a guide, and given the sluggishness of the Senate confirmation process, a nomination should happen by Labor Day.

That leaves a potential vacancy in a job that has become all the more difficult during Bernanke’s time in office. The Fed chairman has always been powerful, controlling the levers of the nation’s monetary policy. But now, since the Dodd-Frank legislation passed in 2010, the Fed and its leader have even more explicit power and responsibility to address risks in the financial system and try to lessen the damage from future crises.

And whereas in the past it has been a fine job for introverts, the addition of four annual news conferences to the central bank’s communications strategy, along with the occasional television interviews Bernanke has conducted, make it more important that the next chairman be skilled not just at setting policies but also at explaining them to the public.

Perhaps no one is truly qualified for a job that includes such wide-ranging responsibility, that calls for a brilliant economist, diplomat, politician and regulator. But fill it the next president must. Here are some of President Obama’s likely options should he win reelection; likely candidates in a Mitt Romney administration will be explored Tuesday.

Let’s divide the list into “above the line” (people who are almost certain to receive consideration) and “below the line” (people who are less obvious candidates or just interesting names for a second-term Obama team to think about). These are the top contenders:

Ben Bernanke

He, of course, would be the safe, easy option; Bernanke is a proven quantity who steered the Fed through the financial crisis and has kept the pedal of monetary easing to the floor in its economically sluggish aftermath. Although Bernanke was originally a George W. Bush appointee, Obama appointed him to a second term in 2010. Friends of Bernanke say he seems inclined to step down after a long five years of crisis-fighting and eight years in one of the most pressure-filled jobs in the country. The former Princeton University professor is said to be eager to return to academic life. But a third four-year term cannot be ruled out. For Obama, he would be a safe, reliable option.

Larry Summers

The former Treasury secretary and Obama White House economic chief is supremely qualified for the job on paper; the question is whether his personality stands in the way of an appointment. He is a first-rate academic economist with long experience at the highest levels of government. But Summers’s self-confident intellect has alienated many people he has worked with over the years. (It even cost him the presidency of Harvard.) In particular, the effectiveness of a Fed chairman depends on his ability to lead a committee of strong-willed central bankers, so the question for Obama is whether he thinks Summers would be able to adapt his style to the Fed. Senate confirmation could be tricky, too — he has enemies on both sides of the aisle.

Janet L. Yellen

Obama appointed Yellen to be vice chair of the Fed, and she surpasses other potential candidates because of her sheer experience. She spent three years as a Fed governor in the 1990s and six as president of the San Francisco branch of the central bank, and she has been Bernanke’s No. 2 since 2010. She has a reputation as a monetary “dove” who is more concerned about unemployment than inflation, and that may unnerve markets (and Senate Republicans).

Roger Ferguson

He was vice chairman of the Fed for seven years under Alan Greenspan and has since worked in the financial sector (though, crucially, not for one of the giant banks that received a government bailout; he is chief executive of financial services group TIAA-CREF). He would bring deep insight to the Fed’s expanded role as overseer of the financial system but would probably draw fire for having overseen bank supervision at the Fed during an era of deregulation in the years leading up to the crisis.

Timothy F. Geithner

The Treasury secretary has made it clear that he is stepping down in January. After a long career in government (including as president of the New York Fed), he may be looking to make some money and enjoy a less demanding schedule. But he will have been out of public office for a year when Bernanke’s term is up, and Obama has a great deal of trust in him.

Other possibilities are below the line — interesting to talk about or think about, but with some weakness that will make it tougher to end up in the job.

Bill Dudley. The New York Fed president has been among Bernanke’s closest collaborators in recent years (along with Yellen). In some ways, he seems like a logical fit for the job: He is a smart economist who understands markets. But before joining the New York Fed in 2007, Dudley spent 21 years at Goldman Sachs, including as its chief economist. In the hothouse political environment of the financial-crisis aftermath, that fact, combined with general antagonism toward the Wall Street bailouts he helped engineer, would make Senate confirmation no easy task.

Don Kohn retired as Fed vice chair in 2010 and has been spending his time at the Brookings Institution and serving on the Bank of England’s financial policy committee. He is deeply respected among central bankers, with an adept sense of the monetary policy and financial regulation sides of the operation. But he, too, was deeply involved in the financial bailouts, and he turns 70 next month.

Obama-appointed Dan Tarullo became a Fed governor in 2009 and has led the bank supervision side of the central bank since. But even if Obama wants a Fed chair to have a stronger focus on regulatory matters, Tarullo could be a tough sell in the Senate. The banking industry does not care for him and would probably lobby against confirmation, and he has clashed with Senate Republicans. It is telling that Obama has left a newly created “vice chairman for supervision” job at the Fed vacant since it was created in the Dodd-Frank Act rather than formally appoint Tarullo to the job that he already does in practice.

The Fed doves have become an increasingly vocal group that has gotten results in steering the central bank toward easing monetary policy to address high unemployment. The question for Charles Evans, Eric Rosengren and John Williams, presidents of the Fed branches in Chicago, Boston and San Francisco, is whether Obama thinks they have the stature and experience to merit consideration for the top job. Similarly, Adam Posen distinguished himself as the resident dove on the Bank of England Monetary Policy Committee in a three-year term that recently ended; he is an American who is set to become president of the Peterson Institute for International Economics on Jan. 1.

American exceptionalism probably makes the idea a non-starter, but if Obama wants to look elsewhere for an accomplished central banker, he could do a lot worse than looking north. Mark Carney, the governor of the Bank of Canada, has presided over sound bank regulation and adept monetary policy that has given that nation one of the world’s strongest economies. That has been enough to cause his name to surface in discussions as to who might be the next governor of the Bank of England. (So, too, has the name of Glenn Stevens, governor of the Reserve Bank of Australia, according to British news reports last weekend.) It is, of course, hard to imagine U.S. politicians being open to the idea of a non-American in a top government job.

Comments
Show Comments
Most Read Business