Who Should Be The Next Federal Reserve Chair?

Aug. 25–Federal Reserve Chairman Ben Bernanke plans to step down when his term expires at the end of January — if not sooner — and President Barack Obama is expected to nominate a successor this fall.

Right now, the front-runners appear to be former Treasury Secretary Lawrence Summers, an economic adviser to the president during his first term; and Fed Vice Chair Janet Yellen, No. 2 at the Fed but without close ties to the president.

Some dark horses have emerged. Obama, for example, floated the name of Donald Kohn, Yellen's predecessor at the Fed before his retirement in 2010. And some economists are pushing Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp.

Whoever gets the nod has big shoes to fill. Bernanke is credited with shepherding the economy's slow emergence from the recent recession, thanks in part to his controversial policy of quantitative easing, in which the Fed buys Treasuries and other government-backed securities from financial institutions to keep long-term rates low and stimulate borrowing.

The Baltimore Sun asked financial and business leaders in Maryland who they think should fill Bernanke's shoes:

Mary Ann Scully, chairman and CEO of Howard Bank

Larry Summers and Janet Yellen are stellar economists and the country is lucky to have both of them. It's nice to have such an abundance of talent available. If I had to choose, then I would say Janet Yellen might be the better person for this particular moment in time. Janet Yellen brings to the table a more current view of both the regulatory environment as well as the economic environment that banks are operating under. She's been on the ground in the last few years, saw a lot of these problems. There are so many other things that Larry Summers can do for the country.

Bill Miller, portfolio manager of Legg Mason Opportunity Trust

I would tend to favor Janet Yellen. All three of those [Yellen, Summers and Kohn] would be fine. Summers would be very controversial, but obviously extraordinarily competent. Kohn, like Bernanke, is a very solid academic. The question is: Are your policies correct? And Janet Yellen, her forecasts so far have been the most accurate of any Fed governor. She was the first one in '07 to say that the crisis was far worse than people thought and that the Fed had to be far more proactive. So she's diagnosed this crisis as well as or better than anybody. … She's got a great academic record. She has been on the Fed for a couple of decades. … You need a chairperson who is strong, articulate and respected, and she has all those characteristics as well.

Barry B. Bannister, chief equity strategist, Stifel Financial Corp.

Though Larry Summers has a well-deserved reputation for cerebral abrasiveness, the next phase for the U.S. economy is more global and less internal, suiting his skills honed in the 1990s during multiple overseas financial crises. Though Ben Bernanke and Janet Yellen were the ideal players to successfully navigate a U.S. debt depression with deflation risk the past five years, it is Summers who is now best suited for European fiscal and banking integration and Chinese economic rebalancing in the next several years.

Joseph Haskins Jr., chairman and CEO of Harbor Bankshares Corp.

I would go with Lawrence Summers or Janet Yellen — with a slight preference for Yellen — to replace Fed Chairman Ben Bernanke, but I'm OK with either one, as they're not that far apart. It's just that I believe she'll follow through more closely to Bernanke, and I think he's done a good job. They both reportedly want to reduce this investing piece [quantitative easing].

John Hussman, president of Hussman Funds

My concern about Ms. Yellen is that she advocates intervening where the Fed should not, and abdicates the responsibility of intervening where the Fed should. Lawrence Summers has been a strong advocate of approaches to economic growth that emphasize real investment, productivity, education and infrastructure, instead of encouraging monetary distortions. While his advocacy of deregulation in the banking sector (particularly the repeal of Glass-Steagall) raises some reservations, his approach to monetary policy seems less interventionist than Yellen's. In my view, a better, if unlikely, candidate for Fed chair would be Thomas Hoenig, the former head of the Kansas City Fed, a former voting member of the [Fed's Federal Open Market Committee], and a director of the FDIC. In my view, Hoenig has been a far better advocate for policies that would, in hindsight, have reduced the risk of financial bubbles and improved the ability of the economy to withstand their collapse.

Sarah Bauder, assistant vice president for financial aid at the University of Maryland, College Park

From a financial aid and higher-education perspective, the next Federal Reserve chair should be someone who recognizes, and can articulate, how economic decisions shape a culture over time and ultimately influence the social, cognitive, and emotional behaviors of individuals and society as a whole. Students are banking on the continued success of the slow climb out of the recession, as well as the rebuilding and strengthening of our economy. Janet Yellen appears to be the best choice, given her similar views with Chairman Bernanke on economic expansion and her focus on job growth.

Michael MacDonald, chairman and CEO of Medifast

You have to find people who bring that strong economic background, strong academic background and strong practical experience. … Alan Greenspan was pretty good. The current one has done a pretty good job. … When you look at the various candidates, Lawrence Summers would be high on my list. … He has a great academic background, financial experience and also was president of Harvard. … He has a terrific economic background combined with a strong government policy background. … The government experience is critical. You have to work across the aisle in Washington.

Daraius Irani, executive director of the Regional Economic Studies Institute at Towson University

I am leaning toward Janet Yellen as she is the vice chair now, was chair of the San Francisco Fed (as a native Californian, I am biased), predicted the housing downturn well before the rest of the Fed and will provide continuity. The markets are very nervous about this pick and her qualifications aside, she is the one with the most institutional knowledge about the current Fed policies.

State Sen. Delores G. Kelley, member of the Senate Finance Committee

While both Larry Summers and Janet Yellen have the academic, technical, and professional experience required to serve as a competent chair of the Federal Reserve Board, Larry Summers' communication style is more abrasive and less collaborative than is Yellen's style. Given the outgoing chairman's skill at consensus-building among the Federal Reserve Board members, given Obama's cerebral and deliberative management style, and given the frailty and volatility of the U.S. and global economies, Janet Yellen represents the best leadership option at this time.

Mark Stoeckle, CEO of Adams Express Co. and Petroleum & Resources Corp.

The choice of the Fed chair is very important to the markets. … The triumvirate of Janet Yellen, Larry Summers and Don Kohn makes the choice relatively easy — they are all eminently qualified.

The most difficult choice to get through the confirmation process is clearly Summers. Republican opposition to Summers will be evident as he has the closest ties to the Obama administration. He is no stranger to controversy and isn't as much a consensus builder as previous Fed chairs have been. In my opinion, Yellen is the front-runner and the best choice by virtue of three things. First, and most importantly, she has a wealth of experience and I believe a very good grasp of the workings of the Fed as well as having a strong intellect and approach to leadership. Second, nominating her would be historic in that she would be the first woman nominated for the Fed chair. Third, she would likely leave the Fed if she was passed over for the big job.

The wild card here is Don Kohn. Known for being Bernanke's right-hand man during the financial crisis, he has more Fed experience than either Summers or Yellen. He has the additional benefit of being very apolitical, which would make his confirmation more palatable to Republicans. If there is a Summers-Yellen stalemate, Don Kohn could be the ultimate winner.

e.ambrose@baltsun.com

___

(c)2013 The Baltimore Sun

Visit The Baltimore Sun at www.baltimoresun.com

Distributed by MCT Information Services