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Who Will Be Tapped to Succeed Bernanke at the Federal Reserve?

July 31, 2013 at 12:00 AM EDT
Federal Reserve board chairman Ben Bernanke will step down from his term in January, and Washington is already buzzing with discussion of who will replace him. Judy Woodruff sits down with David Wessel of The Wall Street Journal to discuss the importance of the Federal Reserve chief and why it matters who takes the helm next.

JUDY WOODRUFF: Federal Reserve Board Chairman Ben Bernanke will step down at the end of his term next January, but the discussion of who President Obama might tap to replace him is already well under way.

To update us, we turn to longtime Fed-watcher and Wall Street Journal economics editor David Wessel. He is also author of “In Fed We Trust: Ben Bernanke’s War on the Great Panic.”

David Wessel, welcome back to the NewsHour.

DAVID WESSEL, The Wall Street Journal: Good to be with you, Judy.

JUDY WOODRUFF: So, before we talk about choosing the next Fed chairman, let me ask you about today’s statement from the Fed about the economy, the story that Kwame reported a few minute ago. How did you read that?

DAVID WESSEL: I read it as the Fed was going out of its way to say nothing. They crafted a statement that reflected some developments in the economy, but they sent no new signal about their plans for winding down their bond-buying or changing interest rates. It was really a no-news event.

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JUDY WOODRUFF: So, let’s talk about the position of being the chairman of the Federal Reserve. How important a job is this, not just to monetary policy, but to economic policy?

DAVID WESSEL: I think it’s pretty important. We have seen in the last couple of years how important Ben Bernanke was to managing — helping to manage the world economy during this devastating financial crisis. We know from history that Paul Volcker, Alan Greenspan, Ben Bernanke, the chairman, even though he’s one of 19 people on the committee, has enormous amount of sway, becomes a symbol of confidence in the government.

And it’s more important now than ever because the Dodd-Frank law gave the Fed a whole lot more power and oversight over the financial system, and that will also be the responsibility of the next Fed chairman.

JUDY WOODRUFF: So the names we’re hearing the most who are supposedly the front-runners are the current vice chairman man of the Fed — and that’s Janet Yellen — and former Treasury Secretary Larry Summers. David, are they the front-runners? Is that who it is believed to be? And if so, why?

DAVID WESSEL: I think they’re the front-runners.

I think they’re both people who are in sync with the president. In some respects, although they have been seen as rivals, they have more in common than they have apart. Larry Summers is a product of Harvard, Janet Yellen of Yale. But both of them believe very strongly, and in contrast to many Republicans, that at this time in our history, our economic history, the government, particularly the fiscal side of government, tax and spending, should be more aggressive.

Both of them believe that the Fed has a pretty important role to play in getting the economy going again. I think that there may be some differences in nuance about how they would actually manage the job when they got there. Their personalities are very different.

But I think in terms of the Fed policy we’d expect, I think there’s actually not that much difference between them.

JUDY WOODRUFF: Well, I want to ask you about that, because there are prominent Democrats who are coming out and talking about Larry Summers’ position on deregulation before the financial collapse in 2008, and they’re questioning whether if Larry Summers were chosen the current Fed policy of bond-buying, stimulating the economy, getting the government involved in the economy would continue.

DAVID WESSEL: Well, I think what Summers has said is that he doesn’t think this quantitative easing, this bond-buying does much good, but he doesn’t think it does much harm either.

And so, on that balance, given how bad the economy is, I think you would expect him to continue the policies of Bernanke, which may involve pulling back. But on the regulatory thing, I think there is a difference.

Mr. Summers has become a symbol of the Clinton-era deregulation of the financial markets. And I think people who are objecting to him on substance, as opposed to personality, which is a whole ‘nother issue, are worried that he is too close to Wall Street. He’s actually been working for Citibank in his years since leaving the White House, and more — not skeptical enough of the banks. And they think Janet Yellen would be more so.

JUDY WOODRUFF: Well, I wanted to ask you about that. When it comes to the other power centers, the Congress, the political leadership in the in this city and Wall Street, how do they see Janet Yellen?

DAVID WESSEL: Well, I think a lot of them see Janet Yellen as the not Larry Summers. He seems to have an extraordinary number of detractors among liberal Democrats in both the Senate and the House.

A bunch of House women signed a petition today calling on the president to appoint Janet Yellen. I think that — but I think that the question — some of this is just kind of posturing. The real decision-maker here is the president.

He knows Larry Summers much better than he knows Janet Yellen. He seems to feel, from what he said to members of the House and Senate caucuses today, that it’s important to have someone who is a good crisis manager, and that kind of sounds like — more like the Summers resume than the Yellen resume.

But this blowback could actually influence his decision.

JUDY WOODRUFF: In fact, as you mentioned, that Summers’ name came up in that session the president had with Democratic members of Congress, and they were critical.


And he seemed to have defended Larry Summers, although we’re not in the room and we don’t know the context. The other thing that is interesting, he mentioned a third player, Don Kohn, another former Fed vice chairman, who would be a surprise pick, a dark horse, but I think it was the president’s way of saying, like, let’s not boil this down to a Janet-vs.-Larry mudfest.

JUDY WOODRUFF: And one there thing about Janet Yellen. You mentioned the women members of Congress who signed this petition. How much is gender seen as a factor in that she would be the first woman Fed chair?

DAVID WESSEL: You know, it’s hard to exclude gender as a factor.

On one hand, you have Larry Summers, who got thrown out of the presidency in Harvard in part because he made some offensive remarks about women in science and engineering. You have the president who has been accused of being — having — running an old boy network. You have a very credible female candidate. So there are people who think, if you can’t get a female chairman of the Federal Reserve now, if not now, when?

On the other hand, I suspect that to some extent the president’s going to think about that and make a choice on other factors, but outside the White House, that seems to have taken a huge role.

JUDY WOODRUFF: It was noticed the administration named a woman deputy treasury secretary today, and wondered if there was any connection.

DAVID WESSEL: Well, it’s interesting. It’s a woman who comes from the Federal Reserve. So there are two female governors on the Federal Reserve Board now, and — in addition to Janet Yellen. They’re both leaving. One has resigned.

I suspect it had nothing to do with the Fed chairmanship, but it certainly will be cited by the White House if they appoint Larry Summers or some other man. They will point to the fact we have a woman deputy treasury secretary and a woman who is head of the White House Budget Office, Sylvia Mathews Burwell.

JUDY WOODRUFF: David Wessel, thank you very much.

DAVID WESSEL: You’re welcome.