President Barack Obama has opened up the contest to become the next chairman of the Federal Reserve, adding former Fed Vice Chairman Donald Kohn to the list of names he’s considering.
At a closed-door meeting with Democrats in the U.S. House, Obama yesterday rejected the notion that it’s a two-person race between former Treasury Secretary Lawrence Summers and current Fed Vice Chairman Janet Yellen to succeed Ben S. Bernanke, whose term expires Jan. 31.
Then, in a separate meeting with Democratic senators, Obama said he has interviewed “lots” of candidates, including “many whose names have not been mentioned” in the press, said Senator Richard Durbin of Illinois, the chamber’s No. 2 Democrat.
By expanding the public list of potential nominees, Obama is seeking to defuse the tension of a perceived Summers-Yellen contest, which threatens to limit his options, according to a person familiar with the matter. Yesterday, 37 House members sent a letter to Obama urging Yellen’s appointment. Last week, 19 Senate Democrats and one independent did the same.
“The President’s advisers are doing what they should do,” giving him “several options to consider,” Laura Tyson, a former chairman of the Council of Economic Advisers, said in an interview. “It’s a very important choice, and to make the choice well, you need to consider the options available.”
Kohn, 70, now a senior fellow at the Brookings Institution in Washington, spent 40 years at the Fed. He was Bernanke’s most important supporter and adviser during the financial crisis. He became a Fed governor in August 2002 and served as vice chairman from June 2006 until June 2010.
Earlier, Kohn was one of former Chairman Alan Greenspan’s closest advisers as director of the Division of Monetary Affairs from 1987 to 2001. He helped Greenspan manage the 1987 stock market crash and adopt the federal funds rate, the rate for overnight lending among banks, as the Fed’s main signal for monetary policy.
Unlike Yellen, a professor emeritus at the University of California at Berkeley, and Summers, former president of Harvard University and a professor there, Kohn doesn’t come from an academic environment.
“He is a central banker,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. Yellen and Summers have “the policy making experience needed to do the job, but they come originally from a different background,” he said.
Obama mentioned Kohn to House Democrats in the course of defending Summers after Representative Ed Perlmutter of Colorado questioned whether Obama should nominate the former Treasury secretary.
The president “took a minute to stand up for Larry Summers,” Representative Brad Sherman of California said after the meeting. Senate Majority Leader Harry Reid, a Nevada Democrat, said after the Senate meeting with Obama that party members in his chamber will support the president’s choice for the Fed, “no matter who it is.”
White House officials have expressed frustration with the public speculation that has surrounded one of the most consequential nominations Obama will make in his second term.
“He puts a lot more stock in private advice than public advice,” senior adviser Dan Pfeiffer said yesterday at a breakfast in Washington sponsored by the Christian Science Monitor. “He’ll weigh all that advice and then he’ll make a decision who he thinks is the best person for the job.”
Before Obama spoke on Capitol Hill, National Economic Council Director Gene Sperling, also hinted that the universe of potential candidates was wider than those discussed in the news media. Sperling praised Yellen and Summers as “great intellects” about whom he’d only have “extremely positive” things to say, even in private.
The defense of Summers was also mounted by White House press secretary Jay Carney, who said that people should “separate” Obama’s defense of Summers from speculation about whom the president will choose as the Fed nominee.
Summers “stood shoulder to shoulder” with Obama through the financial crisis and “the president would defend that individual as I would,” Carney said.
Obama told the senators yesterday that, “when it comes down to their basic philosophy on the future of the Fed,” the differences between the candidates were so small “you couldn’t slide a paper between them,” Durbin said.
After a two-day meeting of the Federal Open Market Committee, the Fed said yesterday that persistently low inflation could hamper the economic expansion and it pledged to keep buying $85 billion in bonds every month.
Some Senate Democrats, including Durbin, have publicly questioned whether Summers should lead the Fed. They raised concerns about Summers’s role in advocating deregulation during President Bill Clinton’s administration that many blame for later creating the financial crisis.
In 1998 Summers, Greenspan and Treasury Secretary Robert Rubin blocked efforts by Brooksley Born, then-chairman of the Commodity Futures Trading Commission, to regulate the derivatives market. It later expanded to include the toxic instruments that led to the 2008 financial market crisis.
After the meeting yesterday, Durbin reiterated to reporters that he would have “a number of questions” for Summers if he were nominated.
“I’m not saying I’ll vote against him, but I’ll certainly ask a few questions,” he said.