President Barack Obama has given investors something else to ponder ahead of what is already a highly anticipated statement from the U.S. central bank: The likelihood of a Federal Reserve without Ben Bernanke at its helm.
Mr. Obama said in a television interview aired late Monday that Mr. Bernanke has served “longer than he wanted,” the latest sign that the Fed chairman is poised to leave after an epic struggle to keep the U.S. economy out of depression.
Mr. Bernanke’s current term runs until the end of January, and it would be extraordinary for a freshly minted chairman to dramatically alter existing policy. Still, any leadership transition could exacerbate an unusual level of anxiety in financial markets over the Fed’s direction in the months ahead.
Adrian Miller, director of fixed-income strategy at GMP Securities in New York, noted that “market psychology and facts sometimes are not in sync,” and Roberto Perli, a former Fed economist, told Bloomberg News that “it doesn’t help make the Fed’s communications easier if Obama is talking about Bernanke in the past tense.”
Mr. Bernanke’s future has been a topic of conversation since March, when he told a press conference that he had broached the subject with Mr. Obama, and that he felt no obligation to oversee the reversal of the extraordinary measures the Fed adopted to fight the financial crisis.
Those comments appeared to confirm what most on Wall Street had been taking for granted – that Mr. Bernanke was exhausted and would return to Princeton University when his second four-year term as chairman ends.
Speculation over Mr. Bernanke’s replacement picked up, with Janet Yellen, the No. 2 at the Federal Reserve Board, emerging as the front-runner.
In recent weeks, such chatter has been replaced by more pressing concerns over whether the U.S. recovery is strong enough to survive on a lower dose of the Fed’s medicine.
Global financial markets have been in turmoil since May 22, when Mr. Bernanke told a congressional committee that the Fed could opt to slow its monthly bond purchases “in the next few meetings,” a reference to the scheduled gatherings of the central bank’s top officials to calibrate policy. The first of those meetings ends Wednesday afternoon. The policy-making committee is scheduled to meet next at the end of July, and then in mid-September.
For six months, the Fed has been creating $85-billion (U.S.) a month to purchase treasuries and mortgage-backed securities, a strategy known as quantitative easing, or QE. The policy – tried for the first time by the Fed under Mr. Bernanke’s stewardship – is meant to put downward pressure on interest rates and push investors into riskier assets, including stocks.
The Fed linked QE to the economy, saying it would purchase bonds at the $85-billion-a-month pace until it sees “substantial” improvement in the labour market. Yet even though the unemployment rate has been falling, the prospect of the Fed letting go appeared to spook many investors. Global equities have lost some $3-trillion in value since Mr. Bernanke’s appearance at the congressional committee meeting a few weeks ago.
Mr. Bernanke, therefore, will be under pressure Wednesday to clarify the Fed’s thinking when he meets reporters at the conclusion of its policy-making committee’s latest deliberations.
And now, thanks to the President, Mr. Bernanke once again will be put on the spot to talk about his future. Mr. Obama’s remarks came in an interview with Charlie Rose, who asked the President whether he was thinking about nominating Mr. Bernanke for an additional term. “Ben Bernanke has done an outstanding job,” Mr. Obama said. “He’s already stayed a lot longer than he wanted or he was supposed to.”
Mr. Bernanke, a Republican, was originally nominated to lead the Fed by former president George W. Bush in 2006. Mr. Obama set aside the temptation to name a Democratic Fed chairman and re-nominated Mr. Bernanke in 2010.
“He has been an outstanding partner along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Mr. Obama said in the interview.