President Barack Obama’s choice for replacing Federal Reserve chairman Ben S. Bernanke will probably come 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 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 L. Yellen and Lawrence H. 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 there is some uncertainty as to 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.
Yellen and Summers are the leading contenders if Bernanke opts against a third term, according to administration officials familiar with the deliberations but who requested anonymity because they were not authorized to speak publicly.
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.
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.”
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.
Critics worry that Yellen may not be concerned enough about the potential for aggressive Fed policies to lead to higher inflation, which so far has been held in check, well below the Fed’s 2 percent annual target.
Obama’s consultations have involved a handful of top advisors, including White House Chief of Staff Denis McDonough and Treasury Secretary Jacob J. Lew.
But a wider circle of White House advisors also has weighed in, presidential aides said. Friends of Summers have touted him as a reliable choice. Newer members of the Obama team talk up the quiet confidence and competence of Yellen, along with the historic significance of her appointment.
Both Summers and Yellen explain complex economic matters well, an important skill after Bernanke added quarterly news conferences and more public speaking engagements.
Some Obama aides have been concerned about Summers’s tendency to speak candidly. But analysts said Summers, as well as Yellen, knows the Fed chairman needs to be careful in public comments.
“I think both of them understand the power of the Federal Reserve … that a careless comment could move markets,” said Bernstein, now a senior fellow at the Center on Budget and Policy Priorities. “They’ve both been in this rodeo for a long time.”