During a recent sit-down interview with the press, President Barack Obama hinted for the first time that Fed Chairman Ben Bernanke may be approaching the end of his tenure at the Marriner Eccles Building. While this move was unsurprising – indeed, Bernanke's term is over at the end of January 2014 – it struck some as unusual given the complex situation that the American central bank now finds itself in.
The Fed's quantitative easing (QE) program, which has been funneling roughly $85 billion in bond purchases into global markets per month, is considered by some to be one of the last remaining impediments for systemic volatility increases and price corrections. As QE serves, in part, to entice market growth by lowering the risk of investment, many fear that the so-called "taper" marks the end of a time of easy profits and reduced losses. Bernanke's role in this system, given that he is considered the heir of Greenspan, is no less important than the execution of QE itself.
Who would take over from Bernanke? Speculation is already rising, though the possibilities can be drawn into two distinct categories. First and foremost, there is Janet Yellen, a Fed governor and Bernanke's effective right-hand official since 2010. Many think that Yellen has been groomed for the position, and markets would most likely view her selection as an indication that Bernanke's slow, consensus-driven style will continue until conditions improve.
On the other hand, hoping to energize the markets in a new direction, President Obama could choose from a number of other economic professionals, such as former Treasury Secretary Tim Geithner or Lawrence Summers, who was also a former Treasury head. However, given the more personal management styles of these individuals, the Obama administration may be afraid to give the markets the signal that a more robust approach means that QE will be ending.
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Categories: Risk Management, Trading & Portfolio Strategies