Over the summer, a debate heated up over what is normally a pretty boring and little noticed process: the nomination for who will replace Ben Bernanke as chairman of the Federal Reserve when he steps down in January. The Obama administration had made signals that its top pick was Larry Summers, but many economists and activists had pushed for Janet Yellen, current vice chairman of the Fed. But on Sunday, Summers sent a letter to President Obama removing his name from consideration.
The dispute over who should run the Fed comes at a time when it is playing a big role in the economy. It has deployed an unconventional stimulus program called quantitative easing that has been helping to keep money flowing in the economy — and therefore giving the struggling recovery some fuel. The next chair will have to decide whether to continue this policy or phase it out. Meanwhile, the Fed plays an important role in financial regulation but missed many of the signs leading up to the financial crisis and then played a part in bailing out the banks. As the Dodd-Frank financial reform law is implemented and its rules are written, the Fed chair could play a role in either helping or hurting the efforts to rein in the banks. And the Fed will need to keep its eyes open now and in years to come for any signs of another bubble looming or other financial crises.
So who might get that important role and what does their resume indicate about how they’d run the Federal Reserve? Here’s who’s still in the running:
1. Janet Yellen: Given that the contest over the summer was between the two, Yellen would appear to be at the top of the list. But the administration may not want to look like it caved to pressure or may have other names it would prefer.
Yet Yellen has extensive experience. For the last three years she has served as vice chairman at the Fed, was CEO of the Federal Reserve Bank of San Francisco for six years, and before that served on President Clinton’s Council of Economic Advisors and was an economist with the Fed. She’s likely to continue the Fed’s stimulus program and isn’t overly focused on inflation at the expense of taking action on lowering the unemployment rate. She also has the most accurate prediction record of Fed policymakers, an important quality for a chairperson as getting things wrong could put Fed policy on the wrong path. And when she did underestimate some of the impact the housing bubble might have on the financial sector, she was able to learn from the mistake and change position. She would also, of course, shatter the glass ceiling at the Federal Reserve.
2. Donald L. Kohn: In a meeting with Congressional Democrats in July, Kohn was supposedly one of just three names that Obama mentioned as possible candidates. Kohn has 40 years of experience at the Fed, most recently serving as vice chairman from 2006 to 2010. Before that he acted as a close advisor to former chairman Alan Greenspan. He is currently a member of the Bank of England Financial Policy Committee, where he helps guide British bank regulation.
Kohn is known as a good crisis manager for the assistance he gave Bernanke when the Fed was deciding whether to bail out Wall Street firms, but that also means he takes some responsibility for bailing out AIG and others. He also tends to be more conservative about monetary policy. While he supported the bailouts and Bernanke’s quantitative easing stimulus program, he has urged caution particularly on the latter. Kohn is also 70 years old and would be the oldest appointment to the position.
3. Tim Geithner: While Geithner may be a favorite at the White House, he has said many, many times that he is not interested in the job. Geithner has experience running the New York Federal Reserve from 2003 to 2009 and most recently as Secretary of the Treasury. But he is considered by many progressives to be too close to Wall Street, which played out during the debate over whether to bail out the banks, and he also stood in opposition to a larger stimulus package in 2009.
4. Other potential women candidates: Women’s groups and other activists have been vocal in their desire to see President Obama put the first woman in charge of the Fed, so he may feel compelled to find a woman candidate. While her name hasn’t been in the running, some have hoped to see Christina Romer get a nomination. Romer served as chairperson of Obama’s Council of Economic Advisors from January 2009 to September 2010, and while in that role pushed for an even larger stimulus package than was proposed to get the economy back to health. She’s also an advocate of “aggressive change” at the Federal Reserve in response to huge catastrophes like the financial crisis and believes the Fed has a lot of power to improve the economy.
Lael Brainard was floated as a potential candidate to fill other open slots at the Fed. She is one of the most highly ranked women on Obama’s economic team as undersecretary for international affairs at the Treasury Department, dealing with the Eurozone crisis. Another woman who was talked about as a possible Fed nominee was Janice C. Eberly, a former senior economist at Treasury.
5. Dark horse candidates: There are other qualified names who haven’t been brought into the running. Stanley Fischer recently led Israel’s Fed counterpart, the Bank of Israel, and also has experience as the number two official at the International Monetary Fund and as an academic economist. “Whether you’re looking for academic brilliance, crisis management or central banking experience, Fischer’s resume is sterling,” Neil Irwin wrote at Wonkblog. Roger Ferguson, CEO of TIAA-CREF and former vice chairman of the Federal Reserve, is said to have good leadership qualities and handled some very tough calls in the wake of 9/11.