The White House moved on Friday to damp down speculation about US President Barack Obama’s choice to lead the Federal Reserve when Chairman Ben Bernanke’s term expires, saying no decision has been made and no announcement is likely until the fall.
Bernanke’s second four-year term as chairman at the US central bank ends on Jan. 31, and Obama has signaled that the former Princeton professor is likely to step down.
That has set off a flurry of speculation over who may replace him, with former treasury secretary Lawrence Summers and current Fed Vice Chair Janet Yellen in the spotlight.
The president’s pick will be one of the most important economic decisions of his second term, and one with global ramifications. The Fed chair steers US monetary policy, making decisions that influence the course of the world’s largest economy, and hence, other economies around the world.
A source close to the White House said earlier this week he had reason to believe Obama was giving close consideration to Summers, if not leaning in favor of him over the consensus front-runner Yellen.
The prospect that Summers might get the nod, amid reports that former treasury secretary Robert Rubin and other Democratic Party heavyweights were waging a behind-the-scenes campaign to get him selected, stirred a hornets nest of criticism, and elicited votes of support for Yellen.
Political liberals slammed the former Harvard University president, who advised Obama during his presidential campaign and during his first term in the White House, for his role in deregulating the financial industry in the 1990s, policies critics say set the stage for the 2007-2009 recession.
MoveOn.org, a liberal group that provided support to Obama’s campaigns in 2008 and last year, circulated a petition opposing Summers.
At the same time, a group of Democrats in the Senate have prepared a letter “strongly” urging Obama to back Yellen. The letter, which a congressional aide said had been signed by about 20 Senate Democrats, lauds her more than a decade of experience at the central bank and gives her credit for spotting the threat posed by the housing bubble.
When Obama does unveil his selection, it is almost certain to cause a ripple in financial markets as investors gauge what the change means for US monetary policy.
Uncertainty driven by the recent speculation was already causing some market jitters.
“The communication of the transition is going to be very, very important,” chief economist at Northern Trust in Chicago Carl Tannenbaum said. “An orderly transition is critical to market confidence.”
Timing the announcement will be tricky because Fed officials are considering whether to pull back from their growth-stimulating policies, perhaps this fall, if the recovery picks up as they expect.
Obama must take care to make his choice public in a way that does not undercut Bernanke’s authority and provide reassurance to markets that the new leader will not make a sharp break from past policies.
“Markets are very sensitive right now because we’re at a turning point,” Tannenbaum said. “If you have a new nominee, you have a recipe for more market volatility.”