Amid speculation over who will succeed Ben Bernanke as Federal Reserve chairman, there are no signs that President Barack Obama has begun a formal search.
Obama, in an interview with PBS’s Charlie Rose on June 17, was not attempting to indicate any imminent change to the financial markets, aides said. Rather, they said, he was simply complimenting Bernanke for a strong performance during the worst financial crisis since the Great Depression.
“They don’t want to announce his replacement early enough to undermine his control of the process,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, a unit of ICAP Plc, the world’s largest broker of financial transactions between banks. “There are benefits to delaying the official beginning of the transition process.”
Still, the president’s comments have intensified speculation among investors about whether changes at the central bank would shift the future course of Fed policy.
Janet Yellen, the Fed’s vice chairwoman, is widely regarded as a top candidate for the position. Other possible nominees include former Treasury Secretary Timothy Geithner, former White House adviser and ex-Treasury Secretary Lawrence Summers and former Fed Vice Chairman Roger Ferguson.
The position requires Senate confirmation, making it likely that the White House would announce a nomination several months before Bernanke’s term officially expires in January to avoid market turmoil.
Bernanke was initially nominated to the post by former President George W. Bush. When Obama decided to announce that he would re-nominate Bernanke in the summer of 2009, five months before his term was up, the president was influenced by the argument that a reappointment would be reassuring to financial markets, according to a person familiar with the matter. Bernanke began his second term on Feb. 1, 2010.
The 18-month recession was the longest and deepest since the Great Depression, and the Standard & Poor’s 500 Index reached a 12-year low in March 2009. Joblessness peaked at a quarter-century high of 10 percent in October 2009. By March 2010, 10.1 percent of all mortgage loans were delinquent, according to data from the Mortgage Bankers Association.
With markets more stable today, Obama will feel less pressure to make a decision to please them, according to the person. While that freedom may lead the president to consider a broad list of candidates, his final decision may be determined in assessing how a potential chairman would react in a crisis.
The heightened uncertainty about the Fed’s plans and future leadership came as Bernanke convened his regular meeting of the bank’s policy-making committee to debate whether to continue an $85 billion monthly federal bond buying program. While policy makers are not expected to slow the program in the near-term, Bernanke’s expected departure has fueled expectations that the Fed may begin scaling back later this year.
“One of the implications of the fact that Ben is now very, very likely to be leaving at the beginning of the year is that he’s going to want to get the so-called exit strategy under way,” Harvard University economics professor Martin Feldstein said on CNBC television today. “He’s going to want to start the tapering before he leaves so that he can say, ‘I did all these good things, and I put us on an exit path.’”
Critics, though, said the almost off-hand remarks about Bernanke in a televised interview were too abrupt a way of managing an economically sensitive transition.
“Immediately, the market is speculating on and wanting to know who his successor is and whether the policies will continue,” said Allen Sinai, chief executive officer of economic consultants Decision Economics Inc. in New York. “It is a potential market destabilizer that didn’t have to occur.”
Obama praised Bernanke’s performance in his June 17 interview, saying the chairman had “already stayed a lot longer than he wanted or he was supposed to.”
“I think Ben Bernanke’s done an outstanding job,” Obama replied. “Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI.”
Mueller has served beyond his 10-year term, with the president recently naming James Comey as his nominee to succeed the FBI director.
Bernanke has hinted for months that he was not eager to remain in his post for a third term. He broke with tradition and decided not to attend the Fed’s annual central banking conference in Jackson Hole, Wyoming, this year.
In March, Bernanke told reporters that he’s “spoken to the president a bit” about his future and felt no personal responsibility to stay at the Fed and oversee the reversal of its policies.
“I don’t think that I’m the only person in the world who can manage the exit,” Bernanke said at the March news conference in Washington.
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