Federal Reserve Chairman Ben Bernanke’s current term runs until the end of January.MANUEL BALCE CENETA/The Associated Press
President Barack Obama has given investors something else to ponder ahead of what is already a highly anticipated statement from the U.S. central bank: The likelihood of a Federal Reserve without Ben Bernanke at its helm.
Mr. Obama said in a television interview aired late Monday that Mr. Bernanke has served "longer than he wanted," the latest sign that the Fed chairman is poised to leave after an epic struggle to keep the U.S. economy out of depression.
Mr. Bernanke's current term runs until the end of January, and it would be extraordinary for a freshly minted chairman to dramatically alter existing policy. Still, any leadership transition could exacerbate an unusual level of anxiety in financial markets over the Fed's direction in the months ahead.
Adrian Miller, director of fixed-income strategy at GMP Securities in New York, noted that "market psychology and facts sometimes are not in sync," and Roberto Perli, a former Fed economist, told Bloomberg News that "it doesn't help make the Fed's communications easier if Obama is talking about Bernanke in the past tense."
Mr. Bernanke's future has been a topic of conversation since March, when he told a press conference that he had broached the subject with Mr. Obama, and that he felt no obligation to oversee the reversal of the extraordinary measures the Fed adopted to fight the financial crisis.
Those comments appeared to confirm what most on Wall Street had been taking for granted – that Mr. Bernanke was exhausted and would return to Princeton University when his second four-year term as chairman ends.
Speculation over Mr. Bernanke's replacement picked up, with Janet Yellen, the No. 2 at the Federal Reserve Board, emerging as the front-runner.
In recent weeks, such chatter has been replaced by more pressing concerns over whether the U.S. recovery is strong enough to survive on a lower dose of the Fed's medicine.
Global financial markets have been in turmoil since May 22, when Mr. Bernanke told a congressional committee that the Fed could opt to slow its monthly bond purchases "in the next few meetings," a reference to the scheduled gatherings of the central bank's top officials to calibrate policy. The first of those meetings ends Wednesday afternoon. The policy-making committee is scheduled to meet next at the end of July, and then in mid-September.
For six months, the Fed has been creating $85-billion (U.S.) a month to purchase treasuries and mortgage-backed securities, a strategy known as quantitative easing, or QE. The policy – tried for the first time by the Fed under Mr. Bernanke's stewardship – is meant to put downward pressure on interest rates and push investors into riskier assets, including stocks.
The Fed linked QE to the economy, saying it would purchase bonds at the $85-billion-a-month pace until it sees "substantial" improvement in the labour market. Yet even though the unemployment rate has been falling, the prospect of the Fed letting go appeared to spook many investors. Global equities have lost some $3-trillion in value since Mr. Bernanke's appearance at the congressional committee meeting a few weeks ago.
Mr. Bernanke, therefore, will be under pressure Wednesday to clarify the Fed's thinking when he meets reporters at the conclusion of its policy-making committee's latest deliberations.
And now, thanks to the President, Mr. Bernanke once again will be put on the spot to talk about his future. Mr. Obama's remarks came in an interview with Charlie Rose, who asked the President whether he was thinking about nominating Mr. Bernanke for an additional term. "Ben Bernanke has done an outstanding job," Mr. Obama said. "He's already stayed a lot longer than he wanted or he was supposed to."
Mr. Bernanke, a Republican, was originally nominated to lead the Fed by former president George W. Bush in 2006. Mr. Obama set aside the temptation to name a Democratic Fed chairman and re-nominated Mr. Bernanke in 2010.
"He has been an outstanding partner along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions," Mr. Obama said in the interview.
A student of the Great Depression, Mr. Bernanke used the Fed's powers in ways that few thought possible.
Under his watch, the Fed absorbed the assets of stressed financial firms Bear Stearns Cos. and American International Group Inc., and it created several emergency lending programs that pumped hundreds of billions of dollars into a financial system that had been shattered by the collapse of Lehman Bros. Holdings Inc. in September, 2008. Mr. Bernanke dropped the Fed's benchmark interest rate to zero, and when that didn't work, he persuaded his fellow policy makers to adopt QE.
Not everyone is as complimentary of Mr. Bernanke's efforts as Mr. Obama. At every step, Mr. Bernanke was forced to overcome opposition, including within the Fed. Thirty of 100 senators voted against his re-nomination in 2010, representing the narrowest victory for any Fed chairman.
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THE CONTENDERS
If history is any guide, Mr. Obama will pick a candidate to succeed the onetime Princeton University professor some time during the summer, allowing ample time for the Senate to consider the nominee before a final confirming vote.
Here is a quick look at the likely leading choices:
JANET YELLEN
Ms. Yellen, 66, has been Fed vice-chair since 2010 and is viewed as a strong contender to be the next Fed chair. A Reuters poll on June 12 found that an overwhelming majority of economists predicted she would get the job.
Ms. Yellen has been a forceful advocate of the aggressive steps taken under Mr. Bernanke to spur U.S. economic growth, earning her a reputation as a policy "dove" who would tolerate a bit more inflation to drive down unemployment that she deemed too high.
If picked to succeed Mr. Bernanke, she would become the 100-year-old central bank's first female chief. Before her current post, Ms. Yellen was president of the Federal Reserve Bank of San Francisco. She was chairman of the White House Council of Economics Advisers under president Bill Clinton and a Fed board governor in Washington from 1994 to 1997.
A former professor at the University of California, Berkeley, Ms. Yellen has a high standing among other academics. She began her career as an assistant professor at Harvard University in the early 1970s before shifting over to the Fed.
LAWRENCE SUMMERS
Mr. Summers, 58, is a Harvard economist who was Mr. Obama's first National Economic Council director, a post within the president's inner circle. He also was Mr. Clinton's Treasury secretary after holding other senior posts in the department.
Viewed as brilliant but prickly, Mr. Summers was a full Harvard professor by the age of 28 and later became president of the university. But his nomination might be controversial, in large part because of his reputation for rubbing people the wrong way.
In a notable episode in 2005, he was heavily criticized for suggesting there were fewer women than men in science and engineering because of a lack of aptitude. Many saw the remarks as sexist; Mr. Summers said he was trying to stimulate debate.
That said, his expertise, professional accomplishments and his service to Mr. Obama are likely to earn him serious consideration for the top Fed post.
Since leaving the Obama White House in 2010, Mr. Summers has returned to teaching at Harvard, joined the boards of several private companies and become a part-time special adviser to venture capital firm Andreessen Horowitz. He also worked for hedge fund D.E. Shaw from 2006 until November, 2008, when Mr. Obama picked him to run the National Economic Council.
TIMOTHY GEITHNER
Timothy Geithner, 51, was Mr. Obama's first-term Treasury secretary. He is also seen as a possible contender for the Fed nomination, but has said that he does not want the job.
If Mr. Geithner could be persuaded to change his mind, his track record is compelling. Before he was tapped for Treasury, he was already at the centre of the nation's emergency response to the financial crisis as head of the New York Federal Reserve Bank.
He also held senior posts in the Clinton Treasury and at the International Monetary Fund, and has long-standing contacts with the nation's largest banks. However, some critics view those ties to Wall Street as an impediment and say he was not tough enough on the banks, which contributed to excessive risk-taking that ultimately led to the 2007-09 housing crisis.
Mr. Geithner had a difficult Senate confirmation as Treasury secretary in 2009 after it surfaced that he had failed to pay some taxes, and that issue might re-emerge if he is tapped for the Fed. Some lawmakers called for Mr. Geithner's resignation early in his tenure at Treasury, but many Republicans later warmed to him, seeing him as an honest broker during tough budget talks.
ROGER FERGUSON
Mr. Ferguson, 61, is chief executive officer of TIAA-CREF, which manages retirement funds for many U.S. schools and hospitals. A Harvard-educated economist and lawyer who was Fed vice-chair from 1999 to 2006, Mr. Ferguson was regarded within the Fed as a smart and thorough policy maker. His appointment would be historical: He would be the first African-American to chair the U.S. central bank.
DONALD KOHN
Mr. Kohn, who retired as Fed vice-chair in 2010 after 40 years at the central bank, is a respected economist who would be viewed as a safe nominee if he could be persuaded to return to public office.
Before taking a Fed board seat, Mr. Kohn, 70, was a top staff lieutenant to then-chairman Alan Greenspan. He is now an external member of the Bank of England's Financial Policy Committee, which sets broad guidelines for the British financial system, and a senior fellow at the Brookings Institution, a Washington think tank.
Reuters