The short list for the next Federal Reserve chairperson is down to just two names, according to Fox Business reporter Dunstan Prial. Ben Bernanke, who is expected to step down in January after eight years as the Fed chairman, will be succeeded by either Fed vice-chair Janet Yellen or noted economist and Washington insider Larry Summers.
Larry Summers’ career in politics
Larry Summers has had a long career in politics, becoming a household name in the 1990s as President Clinton’s Treasury Secretary. He built a reputation for brilliance and arrogance that made him hard to work with, even among people who respected him. He then served as president of Harvard University before a controversial remark wondering if men and women had different innate mathematical abilities led to his resignation.
Larry Summers returned to politics in 2008 when President Obama tapped him to lead the National Economic Council, making Summers one of the architects of the President’s initial response to the financial crisis, though there were reports that he frequently clashed with then Treasury Secretary Timothy Geithner.
Janet Yellen supports quantitative easing
During her three years as vice-chair, Yellen has been a steadfast supporter of quantitative easing and other policies enacted by the Fed in the wake of the crisis. Three rounds of buying bonds and more than four years of record-low interest rates have been controversial and not everyone agrees as to whether these measures have helped the economy recover.
Narrowing the choices down to these two people implies that the President is happy with his administration’s handling of the crisis and is looking for a measure of continuity going forward.
Yellen in particular would provide that continuity for investors who are now trying to figure out exactly what QE tapering is going to look like and how it is going to affect the market. If Yellen becomes Fed Chair, their existing assumptions are probably still valid, but if Summers takes over the Federal Reserve it’s not clear how he would handle the situation, or how markets would react. Summers has experience working on Wall Street from his time at the hedge fund D.E. Shaw, which could give investors some assurance that he will take their concerns into account.
According to The Wall Street Journal, Obama prefers Larry Summers because the two of them have an existing working relationship, although no final decision has been made. The vetting process is being led by Treasury Secretary Jack Lew, and there is currently no time frame for when the official selection will be announced.