With Summers Out of the Running, Who Will Be Tapped to Succeed Bernanke?

Citing likely tough confirmation proceedings, former Treasury Secretary Lawrence Summers withdrew his name to be the next chairman of the Federal Reserve. Jeffrey Brown gets analysis from David Wessel of The Wall Street Journal about who President Obama might nominate and the politics around Summers’ surprise announcement.

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    Now we turn to the search for a new chairman of the Federal Reserve Bank, and to former Treasury Secretary Larry Summers' surprise decision to withdraw from the competition. He was considered the leading candidate to succeed Ben Bernanke.

    Jeffrey Brown has that story.


    It's been a very public spectacle. And now there's new speculation about who will be tapped to take over when Bernanke's second term ends in January.

    David Wessel follows all this closely as economics editor for The Wall Street Journal.

    So, David, first, was this Larry Summers taking himself out of the running, or the White House realizing there was just too much opposition and it wasn't going to happen?

  • DAVID WESSEL, The Wall Street Journal:

    Well, I don't think those are mutually exclusive.

    I think Larry Summers realized and was probably counseled by the White House that his odds of getting through the Senate were not very good. I don't think they told him to get out, but I think he saw the handwriting on the wall, and wrote the president — called the president on Sunday, withdrew his name, and explained that confirmation would be too acrimonious.


    And in explaining why he was such a charged candidate, some of it was personality, clearly, but a lot of it was, what, people — he became a symbol for people of what had led up to the financial crises for many.



    He was a symbol. You might even say he was a caricature. People in the markets thought he would be — run a tighter monetary policy than Ben Bernanke or Janet Yellen, the current vice chair and contender for the job, would run.

    And a lot of people associated him with the deregulatory mistakes of the Clinton era and blamed him for things — I think blamed him for more things than he was really guilty of.


    Now, you mentioned Janet Yellen. The question of course is what now, who now? She had been the other leading contender. Where do things stand as far as you can tell?


    Well, the indications we're getting is that she has a very high likelihood of being picked by President Obama probably sometime in the next couple of weeks.

    We're told they're not reopening the search. She is obviously a highly qualified candidate. It would allow the president to say he put a woman in the job. I think it would be clear that she would be his second choice. The president by all indications preferred Larry Summers. He is out. It looks like he is going to land on her.


    And there are other names that have been out there, Timothy Geithner, in fact, the former Treasury secretary, a few others. Do you think — are they still being talked about?


    Well, there are some being talked about. I mean, the third contender was Donald Kohn, a former vice chairman at the Federal Reserve, now at the Brookings Institution. The president has told us that he interviewed him. Tim Geithner is also a possibility, the former Treasury secretary.

    He has been sending very strong signals that he doesn't want the job, which I interpret as a sign for the president, please, please don't call me and ask me to take it. As I said, the latest information we have — and I'm talking about information today — is that Janet Yellen looks like the favorite, barring some unforeseen glitch in clearance or health problem or some conflict of interests that has not come to fore yet.


    Now, David, in thinking about why all this matters, even this week, right, the Fed is meeting, with very some big decisions in front of it.


    That's right.

    The Fed will meet Tuesday and Wednesday this week. And there are two things to watch. One is, will this be the meeting at which they begin to take their foot off the accelerator, to scale back this $85 billion in bonds they buy every month. And the second is, how will they reinforce the message, if they do that or not, that they intend to keep interest rates, short-term interest rates, very low, near zero, for very long time, until unemployment comes down?

    And one of the reasons the choice of a new Fed Chairman is so important is, Ben Bernanke is the chairman. He is making predictions, promises about what monetary policy will be well beyond his term. So it matters who his successor is. If it's Janet Yellen, the markets and the rest of us can be assured there will be some continuity since she has her fingerprints on that decision.


    And, finally, David, what about the very public nature of what has been unfolding the past weeks and months, how unusual, and is there any thinking that it may have — it may damage the Fed in some sense, no matter who is picked?


    Absolutely. It is unusual.

    Fed transitions are always a big deal, but rarely have they been so public and politicized as this one. The Fed was already on the defensive. It has been on the defensive ever since the bailouts of the financial crisis. I know you talked to Hank Paulson today. He called the process disgusting.

    I think the fact that the president will get his second choice will hurt Janet Yellen when she gets the job. I'm sure over time, if she does a good job, it will go away. But it makes the job much more political and it makes every decision will be looked at through the partisan lens that — it's unusual for the Fed. It's not the way it has been in the past.


    And in this case, the choice for Fed chair played into other politics in Washington, right?


    Oh, absolutely. There's people who want an easy money person. There's people who are worried about the quality of the commitment to regulation. There's a whole issue about, does the Democratic liberal establishment and the women's organizations, have they pressured the president to this, and will this make her suspect with the moderates and the right wing?

    So, yes, it's part of a whole sequence of things. And I think it does damage the Fed. I don't think it's irreparable, but it gives her one extra burden on top of the already momentous burden of managing the economy and dealing with the Federal Reserve Policy Committee, which is a very fractious bunch of 19 people.


    All right, David Wessel of The Wall Street Journal, thanks so much.


    You're welcome.