There’s never a good time to change the head of the US central bank, according to Ethan Harris, who wrote “Ben Bernanke’s Fed” about the chairman of the Federal Reserve.
But it’s even more the case currently as Bernanke appears poised to depart in January, even though the US economy remains weakened by the financial crisis that erupted five years ago.
The White House has yet to nominate a successor — the name is expected within weeks — but it comes as the Fed faces an important policy decision.
Bernanke led the Fed into an ambitious “unconventional” policy of massive “quantitative easing” bond purchases — a choice made after holding its benchmark interest rate at next to zero did not fully get the economy going.
The Fed now faces the issue of whether the keep the stimulus going, pumping $85 billion a month into the economy, even though the jobless rate remains elevated and growth only modest.
Bernanke, 59, has held the job since 2006, when he was chosen by Republican president George W. Bush.
Bush’s Democratic successor Barack Obama kept him on for a second term in 2010 as the country was still reeling from the deepest economic crisis since the 1930s — one of Bernanke’s academic specialties.
In June this year, Obama praised Bernanke’s performance as exceptional, but strongly suggested the Princeton economist will not stay for a third term.
Bernanke himself has not said what his intentions are, but Obama began openly discussing possible replacements in early August, amid rising pressure to state his plans for the world’s most powerful central bank.
“It is definitely one of the most important economic decisions that I’ll make in the remainder of my presidency,” Obama said.
“The Federal Reserve chairman is not just one of the most important economic policymakers in America, he or she is one of the most important policymakers in the world.”
Obama has only said that he would only announce his nominee “in the fall”, suggesting around September-October, with an early nomination important to ensure that there is time for the Congress to approve it.
Obama has confirmed that former Treasury secretary Larry Summers and veteran central banker Janet Yellen are on the White House shortlist, along with “a couple of other candidates.”
The choice has turned into a fight, with Summers attracting criticism from both the left and the right over his record in government, Yellen branded as too soft on inflation, and Obama facing resistance from Republicans in Congress to any of his appointees.
But it has taken on outsized importance, with global economies sagging and the US economy’s pace still dependent on how the Fed manages its stimulus program and interest rates.
Summers, 58, a longtime Democratic policy advisor, has been close to Obama, helping him manage the economic crisis.
Widely praised for his intellect, he nevertheless faces opposition both from Republicans opposed to his politics and liberal Democrats who see him as too close to the Wall Street banks the Fed has to oversee.
Yellen, 67, vice-chair of the Fed and a close ally of Bernanke, is seen by critics as too enamored of the stimulus programs and not sufficiently concerned that inflation could spike due to the bank’s easy money policies.
One third name frequently mentioned is ex-Fed vice chair Donald Kohn, 70, who might be seen by Republicans as adequately conservative.
The debate over Bernanke’s replacement has become uncommonly heated.
While most analysts have said that Obama wants Summers, on Friday the Wall Street Journal reported that three key Democratic senators oppose him to lead the Federal Reserve, creating a huge obstacle if the White House nominates him.
The three are members of the Senate Banking Committee, which must sign off on the pick before confirmation by the full Senate.
Whoever takes the job will have to wrestle with whatever decision is made on cutting back or “tapering” quantitative easing.
The Fed could begin the process of ending its stimulus as soon as its September 17-18 policy board meeting. Or it could wait, leaving the choice to the next chief.