News / Economy

New US Central Bank Chief Now an Open Question

Janet Yellen answers a question from a participant at the International Monetary Conference in Shanghai, China, June 2013 file photo..
Janet Yellen answers a question from a participant at the International Monetary Conference in Shanghai, China, June 2013 file photo..
VOA News
The withdrawal of the leading candidate to head the U.S. central bank leaves it an open question who President Barack Obama might name to succeed outgoing Chairman Ben Bernanke.

A key White House economic adviser in the early years of Obama's presidency, Lawrence Summers, withdrew his name Sunday from consideration to lead the Federal Reserve, the country's key monetary policy agency and an important link in the world economy.

His withdrawal could lead to the appointment of the first woman chairman of the Fed, Janet Yellen, currently the central bank's vice chairman. But other economic leaders could also be named.

One leading U.S. economist, Jim O'Sullivan of High Frequency Economics, said Yellen is the likely choice and would lead to a continuation of Fed support for the American economic recovery.

"Certainly the expectation now is that it will be the vice chair, Janet Yellen," he said. "Obviously, she was the favorite a few months ago, and I would say she's the favorite again now. That certainly would be continuity in terms of current policy."

Washington officials believed Summers, a former Harvard University president, was Obama's first choice to replace Bernanke, when his term expires in January. But several Democratic senators had voiced opposition to Summers' possible appointment, telling the White House that he was too lax on financial regulation.

In a letter to the president, Summers said hearings on his confirmation by the Senate would have been acrimonious and would not have been helpful for the country's economic recovery from the depths of the 2009 recession.

Obama has not publicly said when he plans to name Bernanke's successor. The president has said he has interviewed Donald Kohn, a former Fed vice chairman. Some leading economists in the country are supporting Yellen's appointment.

Speculation over a new central bank chief comes at a key time. Federal Reserve policy makers are meeting this week to decide whether to curtail the economic stimulus measures they have used to try to boost the U.S. economy, the world's largest.

The Fed has been buying $85 billion worth of securities a month to put more money into the economy, but says it may start to trim the purchases and end them altogether by mid-2014. U.S. economic growth has been modest, with expansion of the labor market weakening in recent months.

This week is the fifth anniversary of the start of the world economic downturn, with the collapse of Lehman Brothers, a U.S.-based investment bank.  Obama said the U.S. economy has advanced since then, but that the labor market needs to expand and looming government spending and debt issues need to be resolved quickly.

The United States in the last five years has imposed new restrictions on operations at large banks, but O'Sullivan said the regulations may not be sufficient to prevent another meltdown.

"I guess I'd have to say no, in the sense that there's certain things perhaps you can't control for," he said. "Certainly, this crisis is going is going to be in our memory for awhile, and I think that will influence behavior, as well as the actions of regulators. But I mean, that said, there are limits to what can be controlled through regulation."

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