A New Chair for the US Federal Reserve System
With the upcoming appointment of a new Chair(wo)man for the US Federal Reserve System (the Fed) the blogosphere is abuzz with rumours, recommendations, and revelations about who could be in line for the coveted position ahead of the decision, which will not be made until fall.
Before looking at the top candidates, here is a quick overview of how the Chairperson is appointed and what s/he is responsible for. The whole system is overseen by a 7 Member Board of Governors appointed by the President, each of whom serves for a total of 14 years (non-renewable – unless the member was selected to serve a partial term, in which case they can be reappointed for a full 14 year term). The Chairperson and Vice Chairperson are chosen (once again by the President) from the sitting board members to sit terms of 4 years, which can be renewed – as in the case of Bernanke’s predecessor Alan Greenspan who served as Fed Chair for 18 years. In order to sit on the Board of Governors, the incumbent must relinquish any officership or directorship of, or stock in, any bank, banking institution, trust company, or Federal Reserve Bank. In return, a member of the Board cannot be removed as a result of their policy decisions for the entirety of their term. The Chairperson is tasked with representing the board in all public capacities and is supposed to be ‘apolitical’ in nature.
A few months back it was made fairly clear that current Chairman, Ben Bernanke, was not going to be appointed for a third term. The speculation surrounding who would be following him began almost immediately. Althoughseveral contenders are in the running for the position, two stand out in media coverage as the most likely to succeed Bernanke: Lawrence (Larry) Summers and Janet Yellen, the latter of whom, if appointed, would be the first woman ever to head the Fed, and among the first women to lead a major central bank, with exceptions in Russia, South Africa and Argentina.
An interesting angle to the discussion comes from the very different professional backgrounds of the two top candidates. Summers is considered more the academic type, notably having held the Presidency of Harvard University from 2001-6. He is, however, no stranger to the interaction between his discipline and politics, having held a number of political appointments including the Secretary of the Treasury under Bill Clinton. Yellen, on the other hand, has been a central banker for 20 years and currently holds the position of Vice Chairperson of the Fed. In addition to this, she has served as a professor at the University of California Berkley since 1980.
Both candidates have remarkable resumes, but there are other issues that are also in play. For starters, the elephant in the room: can a woman lead the Fed? For most, this is a no-brainer “yes” and shouldn’t be an issue. Unfortunately, an undertone of sexism is hovering just below surface. See some examples in this article. The issue is exasperated further by accusations against Mr. Summers following comments he made while President of Harvard about the lack of women at the top of the science and engineering departments. The comments and fallout are said to have eventually led to his resignation.
The other major field is the political arena. The Chairperson of the Fed will be chosen by the President of the US, Mr. Obama, who will be educated on all the contenders by his own council of economic advisors, many of whom have close ties to one candidate or an other. Mr. Summers, for example, sat as Director of the National Economic Council for most of 2010 and still has many ‘friends in high places,’ while a group of Democratic Senators have come forward urging the President to steer toward Yellen, who was Bernanke’s right hand during the latest financial crisis.
Meanwhile, some high profile bloggers have already started waving their flags in favour of one candidate or another. In the Summers camp we have big names including Brad DeLong, Ezra Klein, Tyler Cowen. Rooting for Yellen are big thinkers including Paul Krugman, the NYT Editorial Board, James Hamilton and Alan Blinder. Alternatively, Lars Christenson thinks that the seat should be given to Chuck Norris, he explains his reasoninghere!
Photo Credit: KJGarbutt