MacroScope

Curse of the front-runner a bad omen for Fed contender Yellen?

July 18, 2013

The buzz on who will replace Ben Bernanke as Federal Reserve chairman has grown this year and amplified recently with talk of Lawrence Summers as a real possibility. There is also lingering speculation over Timothy Geithner, another previous U.S. Treasury Secretary, and former Fed Vice Chair Roger Ferguson among others as possible successors. Bernanke has provided no hint he wants to stay for a third term.

But above the din the central bank’s current vice chair, Janet Yellen, has remained the front-runner. Her deep experience and implicit policy continuity has crowned her the heir apparent until proven otherwise. A Reuters poll of economists showed Yellen was seen as far and away the most likely candidate.

Yet this is a familiar plot that has played out in other Western countries over the past year – with a shock climactic twist. New Zealand, Britain and Canada have all pulled the rug out from under the presumed front-runner and named a surprise new head of their respective central banks. And perhaps most worryingly for Yellen, in each case the overlooked candidate was the bank’s No. 2 official.

Graeme Wheeler was a U.S.-based consultant last June when he was named governor of the Reserve Bank of New Zealand, cancelling the nomination party planned for RBNZ’s deputy governor Grant Spencer. In November Britain raised eyebrows worldwide when it ignored Bank of England Deputy Governor Paul Tucker and instead named Mark Carney, who was then chief of the Bank of Canada, to be the first non-British head of the BoE. And then in May Canada itself tapped an outsider, Stephen Poloz, a former BoC official who at the time headed an import-loan organization, as its top monetary policymaker. In that case, senior BoC deputy Tiff Macklem was left in the lurch.

A meaningless pattern? Perhaps. But at the very least another wildcard in Washington as President Barack Obama decides who to nominate at the Fed. Time will tell whether the United States breaks from the plot.

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