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Three times in the last 35 years, a president has quietly picked a new chairman for the Federal Reserve and then quickly obtained the Senate's confirmation. The choice of the nation's most powerful technocrat has far-reaching consequences, but it has rarely generated much public anticipation or political debate.
This time is different.
As President Obama considers potential successors to the current Fed chairman, Ben S Bernanke, a debate about the merits of the chief contenders has exploded into public view, with supporters of Janet Yellen, the Fed's vice-chairwoman, seeking to mobilise support in her favour and against her chief rival, Lawrence H Summers, formerly the president's chief economic policy adviser.
The White House sought to lower the temperature on Friday by putting out word that the president was unlikely to announce a choice before the autumn. But a combination of circumstances seems likely to fuel continuing debate.
Summers, 58, is a provocative figure among key Democratic constituencies. He was a chief architect of financial deregulation during the Clinton administration and later resigned the presidency of Harvard University after making remarks about women that set off a storm of controversy. Yellen, 66, would become the first woman to lead the Fed, or indeed any major central bank.
Yellen is an architect of the Fed's efforts to reduce unemployment while Summers and some of his key supporters have said the Fed's latest round of bond-buying is doing little good and may even be doing considerable harm.
A group of mostly liberal Senate Democrats, including Richard Durbin of Illinois, the No. 2 leader, and Patty Murray of Washington, another member of the leadership, signed a letter to Obama this week calling for Yellen's nomination in part because of her commitment to seek faster job growth. It is highly unusual for a group of senators to publicly endorse a specific candidate for such a high-level position.
"Janet Yellen has impressed a lot of us in the Senate with her experience and her focus on getting workers back on the job," said Murray, the Senate budget committee chairwoman. "She would certainly be a great and historic choice."
The letter did not mention Summers, and it is not clear how many of those senators would oppose his nomination. The White House declined to comment, but officials said at least some of those senators had indicated they would ultimately support Obama's choice.
"The key here isn't that people would vote against Summers, rather it's that at a time when every confirmation can be long and painful, hers would be smooth - at least on the Democratic side," said one senior Democratic aide.
Republicans cautioned that Yellen might struggle to win their support.
"We do hope that the president will nominate someone to the Fed that will exercise modesty in regard to what they feel the central bank's role is," said Senator Bob Corker, a Tennessee Republican. "I'd like to see someone who is not dovish. Someone who is more towards the center as it relates to monetary policy."
Summers questioned the benefits of the Fed's efforts to stimulate the economy in a 2012 paper written with Brad DeLong, an economics professor at the University of California, Berkeley. The paper, presented at a Brookings Institution conference, also noted potential costs including, "distortions in the composition of investment, impacts on the health of the financial sector, and impacts on the distribution of income, and the historically clear tendency of low-interest rate environments to give rise to asset market bubbles."
He made similar remarks at a private investment conference in April, according to a summary obtained by The Financial Times, declaring that the Fed's bond purchasing "in my view is less efficacious for the real economy than most people suppose."
Robert Rubin, the former Treasury secretary who has served as a mentor to Summers in his political career and is among those pressing for his nomination as Fed chairman, criticised the Fed's policies even more sharply on a panel at the Aspen Institute last month. His remarks suggested that the challenge confronting the next leader of the Federal Reserve was not to direct an attack, but instead to manage a retreat.
"The big risk, the important risk, and the one that could affect all of us is, 'How are they going to get out of this thing?' " Rubin said. "I think that creates enormous uncertainties and creates a very, very difficult challenge for the Fed and a set of risks that I've just articulated that I at least find quite troubling."
Similar concerns are shared by many economists, and indeed by some Fed officials. But they are not the views of Bernanke and his allies, including Yellen, who have described what they see as clear evidence that the Fed's extraordinary efforts to inject extra money into the economy, known as quantitative easing, are benefiting the broader economy. And, while acknowledging the potential for negative consequences, they say that they see no sign of damage as yet.
Yellen said in April speech that the policies had "on net, provided meaningful support to the recovery." She added, "I don't see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability."
Alan S Blinder, a professor of economics at Princeton who served as the Fed's vice chairman in the 1990s, said Yellen and Summers still stood relatively close to each other on the ideological spectrum. He said a more intriguing question was whether Summers agreed with changes in the way that the Fed pursues its goals, particularly its emphasis on speaking to markets more clearly.
"Janet's probably a bit more dovish than Larry, but it's not a huge difference," Professor Blinder said. "Where there might be a bigger difference is on the Fed's new openness and communicativeness. Janet's been a driving force behind that, but I don't know that Larry has opined on that."
Yellen's supporters also emphasise what they see as her greater commitment to financial regulation. They note that Summers, as an official in the Clinton administration, played a central role in deregulating financial markets, including preventing federal regulators from overseeing the trade in financial derivatives. He has since described some of those policies as mistakes.
Supporters of Summers, in turn, tend to emphasise his track record as a crisis manager.
"Political savviness is, unfortunately, these days of central importance to the Fed," Tyler Cowen, an economics professor at George Mason University, said in an email. "Can a Fed chair convince a future Republican president that the Fed should be listened to on some urgent matter of the future? Can a Fed chair line up Obama, the Treasury secretary and key members of Congress on an approach or proposal over the next few years?"
Summers, he wrote, simply has more "right-wing street cred" than Yellen.
© 2013 The New York Times News Service
