Dissimilar front-runners emerge for leading Fed

Los Angeles TimesJuly 19, 2013 

— President Barack Obama’s choice for replacing Federal Reserve Chairman Ben Bernanke probably comes down to a quiet consensus builder who would be a historic pick, or one considered brilliant but difficult to work with.

Through unprecedented policy moves and public outreach, Bernanke has dramatically expanded the role and the profile of the nation’s central bank. But neither he nor the White House have indicated whether he would seek a third term or be renominated.

It is widely expected, though, that Bernanke will step down when his current term expires in January.

Janet Yellen and Lawrence Summers – the two leading contenders on the White House’s short list – offer contrasting styles that could play a crucial role in the Fed’s delicate task of withdrawing its stimulus efforts in the next few years without damaging the economic recovery.

Yellen, a soft-spoken and respected economist who has been the Fed’s vice chair since 2010, is most likely to continue Bernanke’s mix of aggressive steps to boost the economy and understated academic ways of explaining the central bank’s actions.

The former University of California-Berkeley economics professor would be the first woman to lead the 100-year-old Fed.

Summers, the outspoken former Treasury Secretary and Obama economic advisor, is known as a brilliant economist who also probably would continue the Fed’s aggressive stimulus policies.

But the Harvard economist is known for having a prickly personality. And that means he’s more of a wild card when considering how he would lead a Fed policymaking apparatus that strives for consensus and how he would communicate its actions to financial markets that can overreact to even the most carefully worded pronouncements.

A pick could be announced soon. But Obama advisors believe the president hasn’t decided between the two and might be considering other candidates, including former Treasury Secretary Timothy F. Geithner.

A tough task

Vincent Reinhart, former director of the Federal Reserve’s division of monetary affairs, said Yellen and Summers are highly qualified for the tough task of replacing Bernanke.

“I think it’s a very tough call,” said Reinhart, now the chief U.S. economist at Morgan Stanley.

A Fed spokesman said neither Bernanke nor Yellen had comments on their futures. Summers did not respond to a request for comment.

Summers ignited a furor as president of Harvard in 2005 when he suggested women were underrepresented in science and engineering because they lacked the aptitude of men. Summers resigned as president a year later as he faced a faculty no-confidence vote triggered by the comments.

With the economic recovery still fragile, Obama might not want to risk a contentious confirmation fight in the Senate. The Fed’s stimulus policies have been controversial, with many Republicans arguing the central bank has gone too far and some Democrats contending it hasn’t done enough to stimulate hiring.

“Larry Summers is certainly an excellent economist, but he does come with some baggage,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “I think that might well slow down the approval process, and this is not something this economy can afford at such a delicate time.”

Differing experience levels

Summers, 58, was a high-ranking Treasury official in the Clinton administration, serving as secretary in 1999-2001. He also headed the White House National Economic Council in 2009-2010, playing a pivotal role in Obama’s early response to the Great Recession and financial crisis.

Summers has never served on the Fed, so his positions on monetary policy are not well-known. Analysts said he probably backs the Fed’s recent actions and wouldn’t hesitate to act aggressively in response to economic problems.

Summers has financial markets experience, working for hedge fund D.E. Shaw & Co. in 2006-2008.

Yellen, 66, offers stability. She’s been a loyal ally of Bernanke since joining the Fed Board of Governors and, before that, as president of the Federal Reserve Bank of San Francisco. She also served a stint on the Fed in the 1990s and headed President Bill Clinton’s Council of Economic Advisors in 1997-1999.

No Fed vice chair has ever been elevated to chairman. But analysts said Yellen’s history at the Fed would guarantee a smooth transition. Yellen has been the overwhelming front-runner to replace Bernanke in recent polls of economists and investors.

“My sense is she’d be a very good consensus builder, and that’s really important,” said Jared Bernstein, the former chief economist to Vice President Joe Biden.

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