Bernanke exit could complicate Fed's pullback
WASHINGTON — The Federal Reserve expects to start slowing its bond-buying program this year just before it might need to manage another major transition that could spook investors: the likely exit of Chairman Ben Bernanke.
Bernanke is expected to step down in January. By then, financial markets will likely be absorbing a pullback in the Fed's bond purchases, which helped push long-term interest rates to record lows. Bernanke said last week that the Fed expects to slow its bond-buying later this year — and end it next year — if it thinks the economy can manage without it.
Bernanke hasn't said he'll leave in January, when his second term ends. But he's widely expected to step down then. Among several possible successors, most Fed watchers think the leading candidate is Vice Chair Janet Yellen.
As chairman, Yellen would likely aim to carry on Bernanke's policies. Even so, economists say a shift in leadership at such a delicate time might rattle investors.
“We know for sure now that Bernanke is a lame duck,” said Sung Won Sohn, an economics professor at California State University. “The leadership change at the Fed will add to the uncertainty in the markets at a time when the Fed is trying to navigate the transition from easy money to a less accommodative stance.”
Even before he leaves, the expectation that Bernanke has just a few months left as chairman could raise doubts about his policies, even though Yellen would be expected to push the same policies.
Investors' panicky response since Bernanke said the Fed will likely slow its stimulus later this year — if the economy is sturdy enough then — showed what could go wrong if a leadership transition is poorly managed.
The possible overlap between a Fed pullback in bond purchases and a new chairman “will compound the uncertainty and possible market volatility,” said Brian Bethune, an economics professor at Gordon College in Wenham, Mass.
Mark Zandi, chief economist at Moody's Analytics, said the Fed probably will learn from the distress it caused investors with Wednesday's word of a likely pullback in bond purchases this year. Many investors had thought — or hoped — the Fed would wait longer.
“They went too far and too fast,” Zandi said.
Most economists say the administration will strive to avoid any surprises in its handling of Bernanke's expected exit. Yellen is seen as a comforting choice, given that she's considered a Bernanke ally who has held the No. 2 post at the Fed since October 2010, said Diane Swonk, chief economist at Mesirow Financial.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Developer hopes to make Allegheny Center a tech hub
- BNY Mellon to pay $180M to end foreign-exchange lawsuit
- Murray Energy expects to lay off as many as 1,800 more
- BNY Mellon promotes executive
- Parent of Lane Bryant, Justice to buy owner of Ann Taylor for $2B
- IRS refunds $10M to tax preparers who paid to take competency test
- Supreme Court ruling makes suing over 401(k) plans easier
- Lumber Liquidators CEO abruptly resigns
- CVS to enter elder-care market with acquisition of drug distributor Omnicare