Who will succeed Bernanke as Fed chair?
by Mark Hamrick
March 15, 2013
Ben Bernanke is in the final year of his second term as chairman of the Federal Reserve, but it is unclear whether he will actually leave early next year.
The appointment of the Fed chairman is of immense importance, ultimately affecting the finances of nearly all Americans, as well as of people around the globe.
Whenever Bernanke's leadership of the central bank ends, the person expected to succeed him is Vice Chair Janet Yellen. She would be the first female head of the central bank.
It is widely believed Bernanke will depart as scheduled early next year and return to academia. Before moving to Washington, D.C., he was head of the economics department at Princeton University. Even as Fed chairman, Bernanke returned to the classroom last year as a guest lecturer at George Washington University.
As the handicapping heats up on future leadership of the Fed, there's speculation that Bernanke could surprise observers and decide that he wants to stay.
Either way, President Barack Obama would have to make the appointment, which requires Senate confirmation. Bernanke would be expected to have a conversation with the president to express his preference, whether to stay.
"Fed policy affects everybody," says James Angel, associate professor of finance at Georgetown University, "whether it is the old person who is getting no interest on their savings account, or the person who sees their savings ravaged by inflation or the person who is out of a job."
Whether Bernanke leaves next year, Yellen is widely viewed as his most likely replacement. She is considered "dovish," or more concerned with addressing unemployment than inflation. After extraordinary efforts used to lift the economy out of the financial crisis, experts believe the key mission for a future Fed chair will be to keep inflation at bay by raising interest rates from their current record-low levels.
One scenario envisioned by several people interviewed would have Bernanke looking to extend his tenure, if only for one year. Jeremy Siegel, finance professor at the University of Pennsylvania's Wharton School, says " Bernanke might want to stay if the markets remain stable and even improve this year."
Bernanke insisted at a December 2012 news conference that he hadn't given his future plans much thought and hadn't discussed the issue with the president.
As for why Bernanke might opt to depart, Georgetown's Angel says, "Ben Bernanke, after the Fed, could cash in big time. Maybe he's tired of that salary he's getting and of all the political flak he gets." The chairman's salary is about $200,000 a year. That's high by most people's standards, but likely much lower than he can command after leaving, when you include speaking and consulting fees.
Lynn Reaser, chief economist for Point Loma Nazarene University, says Yellen is Bernanke's most likely successor "if she wants the job." But Yellen would need to brace for criticism.
Consensus-building has been a big part of the job under Bernanke and his predecessor, Alan Greenspan. Building consensus could be a challenge with a new Fed chair. David Smick, global strategist with Johnson Smick International, cautions that "if Yellen is his replacement, there will be a lot of pushback."
Why the resistance? Former Federal Reserve Bank of Dallas President Bob McTeer says Yellen's reputation as being potentially soft on inflation is "probably fair." He says the reputation results from her speeches, not necessarily from arguments she presented behind closed doors as a member of the policymaking Federal Open Market Committee.
Diane Swonk, chief economist with Mesirow Financial, believes Yellen would be Bernanke's own choice for the post. "Continuity will be very important for Bernanke," Swonk says.
McTeer says another possible candidate for Bernanke's replacement is Alan Blinder. He was chairman of former President Bill Clinton's Council of Economic Advisors and vice chair of the Fed in the mid-1990s. Blinder recently released a book, "After the Music Stopped," about the 2008 financial crisis.
Smick says former Vice Chair Donald Kohn would be a respectable, possible choice. "He'd be more like a traditional central banker, like (Paul) Volcker," Smick says, adding that Kohn "was highly respected and I think was quite influential when working with Bernanke. A lot of people were sorry to see him retire. He was a go-to guy on a lot of different things." Kohn retired from the Fed in 2010. Janet Yellen was his successor as vice chair.
Any presidential appointment would likely face tough scrutiny during the Senate confirmation process. Swonk says a possible dark horse candidate is Federal Reserve Bank of New York President William Dudley. He succeeded former Treasury Secretary Timothy Geithner in the regional Fed post. Swonk, noting that Dudley spent a decade as chief economist at Goldman Sachs Group, says "someone with a Wall Street background would be harder to put through."
Angel says getting the appointment right is "extraordinarily important, because if you put a moron in there, they can mess up the entire global economy."
Bernanke holds his first formal news conference of the year March 20, at which time reporters are likely to ask him if he's given any more thought to his future with the central bank.