The smart money's on a female for the Fed

The leading contender to take charge of America's purse-strings as head of the Federal Reserve would be the first woman in the job
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The Independent Online

Few jobs in the realm of economic policy are as consequential as that of the chairman of the US Federal Reserve. Every utterance by the incumbent is parsed by traders, economists, journalists – anyone, really, with an interest in the fortunes of the world's largest economy.

Ben Bernanke, who has held the position since early 2006, is due to finish his second term at the beginning of next year. The prevailing consensus among Fed watchers is that he will then hand over responsibility for US monetary policy to someone else, stepping back after eight years during which he's had to strain every lever at his disposal as the financial system imploded and the country, and the world, entered a deep, bruising recession. And with the recovery far from complete, and markets growing increasingly nervous about how and when the extraordinary measures will be rolled back, the identity of his successor has already become a hot topic on this side of the Atlantic.

Leading the pack, according to recent gossip on Wall Street and a new poll of economists published this week, is Janet Yellen, Mr Bernanke's number two, the vice-chair of the Fed and the ex-head of the San Francisco Fed, who is known for the importance she attaches to the health of the labour market.

Others in the running include Larry Summers, a former Treasury Secretary and Obama adviser; Roger Ferguson, a former Fed vice-chair who now runs the TIAA-CREF, the giant financial services concern that handles around $500m in assets for university professors and workers in the non-profit sector; and Donald Kohn, another former Fed vice-chair and a veteran of the US monetary system whom Alan Greenspan has cited as his "first mentor" at the central bank.

Some have even floated the name of Tim Geithner, President Barack Obama's former Treasury chief who, when the banking system buckled in 2008, was installed at the New York Fed.

Whoever gets the job will face an extraordinarily challenging in-tray. The tea leaves – in the form of Mr Bernanke's recent testimony before Congress and the minutes of the last meeting of the Fed's policy-setting Open Market Committee – suggest that a partial reversal in policy might be in store later this year. But even if that happens – and if it does, it will almost certainly only involve a reduction in the $85bn (£54bn) worth of government and mortgage bonds that the Fed is currently buying every month, not any action on the Fed's benchmark interest rate – it'll fall to Mr Bernanke's successor to manage the unwinding of the loose policy regime that's been in place ever since the onset of the financial crisis.

If the Fed rolls back the measures too fast, it might strangle the nascent recovery. If it's too slow, it could stoke inflation as the economy gathers speed.

In Ms Yellen's case, the critics say that she might prove too dovish, at a time when the emphasis at the Fed is shifting to how and when to tightening policy (some critics worry about the possibility that she might overcompensate for her reputation by rolling back the stimulus measures too fast). Her focus on unemployment, however, sits well with the prevailing political imperatives of the day.

Above all, she is seen as an able policymaker who already exerts considerable influence at the central bank.

At 66, she wouldn't be the youngest candidate – but then, Alan Greenspan was only a couple of years away from his 80th birthday when he began his final term at the helm of the bank.

The political calculus certainly appears to be in her favour. No one would be able to question her credentials – besides heading the San Francisco branch of the Fed, she is a former chair of the Council of Economic Advisers, has taught at Harvard and the University of California at Berkeley, and in the late Seventies was a member of the London School of Economics faculty – while the Obama administration would be able to claim credit for naming the first woman to lead a major central bank.

This week, a Reuters poll of 44 economists showed just how far ahead she is in the pack of runners and riders for the job: 40 of those surveyed said they expected her to be named for the job. Support for appointment wasn't as strong. But with 23 of 38 economists endorsing her for the role, it remains convincing.

Mr Summers, though far behind Ms Yellen in the polls, is seen as the other high-profile alternative. He, too, boasts strong credentials, although he will no doubt face questions about his very central role in loosening the regulatory regime that governs the financial sector when he was in government in the 1990s. There was also the controversy at Harvard when he was president of the university and seemed to suggest that men outdo women in certain subjects owing to biological differences, something for which he has long since apologised.

Of the others, Mr Geithner, many think, is unlikely to want the job, given his comments on the matter earlier this year.

The President could, of course, opt for a candidate with a lower public profile, in which case Mr Ferguson, with his experience at the Fed and in the financial services sector, could emerge as a potential dark horse nominee.

The answer should be forthcoming by the autumn, when the White House is expected to formally name its choice.