Decision on next Fed chief a rare political battle
JACKSON, Wyo. - Bette Midler wouldn't typically be expected to trumpet her opinion on who should be the next chair of the Federal Reserve.
This time is different.
The world's most powerful economic post is the focus of an unusually public struggle over two renowned economists, Fed Vice Chair Janet Yellen and former Treasury Secretary Larry Summers.
Chairman Ben Bernanke is expected to step down when his second term ends in January, and the contest to succeed him is sure to spark chatter at this week's annual meeting of central bankers here. Though the principals have kept mum, their camps have waged a battle that has riled Congress, spawned opinion columns, and sparked commentary like the Divine Miss M's.
Midler recalled that before the 2008 financial crisis, Summers resisted efforts to regulate the kinds of risky investments that helped ignite it.
A sample Midler tweet: "HUH. The architect of bank deregulation, which turned straight-laced banks into casinos and bankers into pimps, may be next Head Fed: Summers."
That's just the public campaign. Then there's the whisper campaign suggesting Yellen might lack the gravitas to be Fed chair, a job requiring powers of persuasion as well as credibility with fellow Fed officials and global leaders. Her supporters regard such assertions as a sexist attack on someone who would be the first woman to lead the Fed.
Participants at the Jackson Hole gathering will meet in a conference room to mull topics such as "The Natural Rate of Interest, Financial Crises and the Zero Lower Bound."
The hallways and grounds of the host lodge are where conversation will likely take up the juicier succession battle - something the Fed has never witnessed. The selection of a chairman has long been handled privately by a president and his senior advisers.
"Most presidents strive for a smooth, quiet transition that doesn't put markets on edge," said economist David Jones, author of several books on the Fed. "Now, we have this knockdown, dragged-out fight, and nobody knows what will happen."
Until a few weeks ago, Yellen, the No. 2 Fed official, was seen as the front-runner, though some thought President Obama might urge Bernanke to stay for a third term. That would give the administration a seasoned hand to manage a perilous shift: the Fed's eventual move to raise interest rates from ultra-lows and sell much of its $2 trillion-plus investment portfolio, while also convincing Wall Street the economy and the stock market won't suffer.
Yet Summers emerged as a strong contender with the backing of senior Obama officials, perhaps including the president. Summers headed the Clinton Treasury Department and led Obama's National Economic Council during his first two years in office.
By contrast, Yellen isn't well known outside central-bank circles and has yet to play a leadership role during a global crisis.
Her supporters argue, though, that Yellen has played a key, if less public, role at the Fed. She has been its representative at international finance meetings and has helped develop its plans for responding to a global crisis.
Summers and Yellen declined through representatives to speak about the Fed post. At Jackson Hole, Yellen will moderate discussions but is not scheduled to address the conference. Summers is not here this year.
Asked about the chairmanship at a news conference this month, Obama defined the main qualification as "somebody who understands they've got a dual mandate" of pursuing low inflation and maximum employment.