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With Summers gone, Fed chair pick could be swift: Erica Alini

No more wild cards

Former Treasury secretary Lawrence Summers, as you probably know by now, bowed out of the race to become the next Fed chair on Sunday night. In all likelihood, this means two things. One, every other candidate whose name has been publicly tossed around is more dovish than Summers, at least in the eyes of the market. Two, every other potential Bernanke successor out there makes for a less mysterious Fed chair than Summers would have been.

On number one, the proof is in the worldwide stock rally that followed news that Summers had written to the president to pull his hat from the Fed nomination process. Many investors believed Summers to be somewhat of a hawk and feared he would unwind the Fed’s current bond-buying program too soon.

That view might have been misguided. As CIBC’s Avery Shenfeld noted in a short note Monday morning, can anyone picture an Obama pick not being a dove? Still, it’s easy to see where the markets might have gotten the idea that Summers was hawkish. In April, he dropped a couple of bombshell quotes like: “QE in my view is less efficacious for the real economy than most people suppose.” Or: “I think the market is underestimating the pace at which the Fed will alter its current course and the consequences of that for interest rates.” And this was coming from someone who hasn’t said much else on monetary policy in general.

The views of the rest of the cadre of Fed papabiles, by contrast, holds views that are both well known and well articulated and roughly in line with those of the current Chair, Ben Bernanke. No wonder markets are now convinced the Fed is headed for continuity.

Vice-chair Janet Yellen, of course, played such a large role in shaping the Fed’s current policies on QE and forward guidance that she is commonly nicknamed “Bernanke Two.” Donald Kohn, the person the White House has interviewed for the job so far, was Bernanke’s number two before Yellen. His tenure as Fed vice-chair coincided with the period in which the U.S. central bank was more cautious—likely too cautious—about toying with unorthodox tools such as asset-buying policies. Still, he did support QE, and his views are said to have evolved, much like Bernanke’s own.

Among less likely but frequently cited candidates, Roger Ferguson was vice-chair under Alan Greenspan. He also voiced support for QE, dismissing fears that the massive bond purchases would trigger runaway inflation, in line with Bernanke, Yellen and Kohn. Princeton Economist Alan Blinder, another former vice-chair, is a Yellen fan. And Stanley Fischer, who recently resigned as head of Israel’s central bank possibly to take on the Fed job, is Bernanke’s former thesis advisor—and notoriously a proud mentor of his star pupil.

Short of Fischer (who was born in Zambia, is a dual Israeli-American citizen and was briefly hospitalized this summer) the remaining candidates for the Fed’s top job all seem rather uncontroversial politically. They’re all expected to have a smoother ride through Congress’ confirmation process than Summers would have.

A roster of candidates whose monetary policy ideas are known to the markets and appealing—or, at least, not repulsive—to Democrats and Republicans means the appointment could be swift. Summers’ nomination required extensive preparation: The White House likely let its preference leak out in order to prepare investors and test the waters in terms of Congressional support. None of that, it seems, is necessary for the remaining potential nominees, and after the Summers blowup, Obama might want to keep his cards close to his chest.

Erica Alini is a reporter based in Cambridge, Mass., and a regular contributor to, where she covers the U.S. economy.
Follow @ealini