The Federal Reserve under Chairman Ben S. Bernanke has committed itself to a monetary strategy for this year and beyond that will be difficult to undo under a new chairman.
Under Bernanke’s leadership, the Fed has set out clear markers for the conditions that need to be met to moderate and eventually end its asset-purchase program and then begin increasing interest rates. As a consequence, the identity of the chairman next year is unlikely to matter as much as in the past.
“Usually, the Fed chairman comes in with a clean slate to do whatever they want,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and a former researcher with the central bank. “Whoever comes in this time is going to inherit a pretty rigid structure.”
Bernanke’s second four-year term as chairman ends on Jan. 31. While neither he nor the White House has said definitively that he’ll step down, President Barack Obama suggested just that in a television interview last week, saying the Fed chief had stayed in his post “longer than he wanted.”
Bernanke has tried to make the policy-making Federal Open Market Committee more transparent and democratic. By de- emphasizing the role of the chairman in the committee’s deliberations, he has made it harder for his successor to change the course of policy, said Roberto Perli, a former Fed official who is now a partner at Cornerstone Macro LP in Washington.
“The FOMC under a potential new chair would be largely the same as the current one, and it is unlikely that FOMC members would relinquish their authority or renege on their own policy commitments simply because a new chair may have different views,” Perli wrote in a June 19 note to clients.
Assuming Bernanke is leaving the Fed, Obama probably will want to name someone whose views are not all that different. In a television interview with Charlie Rose, the president said the Fed chairman has done “an outstanding job.”
“I’d be quite surprised if the president nominated a chairman who wasn’t broadly in agreement with the policies that the current chairman has led on the committee -- an emphasis on getting the unemployment rate down and having economic activity be stronger, an emphasis on communication and transparency,” former Fed Vice Chairman Donald Kohn said in an interview in Bloomberg’s Washington bureau.
One of the leading contenders to replace Bernanke is the current vice chairman, Janet Yellen, who led a subcommittee on the FOMC that focused on devising the central bank’s communications strategy. Since Yellen helped forge the policies, she’d probably be inclined to continue them, said Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities Inc. in New York.