As you head out for the weekend, you may be worried. You've heard that there's some sort of kerfuffle in Washington over the next Chair of the Federal Reserve, but you haven't been paying attention. What if it comes up while you're sipping a gin and tonic at a backyard get-together on Sunday? Worry not, attendees of unusually urbane barbecues. We've got you covered. Here's everything you might possibly need to know about the three-person contest to run the Fed.
We shall start, as is tradition, at the beginning.
What is the Fed chair?
The Federal Reserve ("Fed," for short) is the central bank of the United States.
Which prompts the question: What is a central bank? A central bank is an institution that, in short, manages a country's currency and interest rates. Established partly in response to a series of economic panics in the 19th century, the Fed allows the country to adjust the money supply to regulate against inflation — and other things, as described here. The Fed also operates banks that manage twelve districts around the country.
In short: The Fed acts as a watchdog over the economy and the financial institutions that constitute it. It is managed by a board of governors, lead by the chairperson of that board. Or, really, the chairman; there has never been a woman in that position. The current chairperson is Ben Bernanke. Before him, it was Alan Greenspan. That you probably know both of those names indicates the importance of the position.
Why is there going to be a new chairperson?
Bernanke's second term as Fed chair ends next January, and he has said he won't stick around for a third. So the White House is figuring out who it will nominate to replace Bernanke. Once that happens, the nominee must be approved by the full Senate, which probably wouldn't happen until Bernanke steps down.
Who are the leading candidates?
The New York Times outlined the three leading candidates on Friday. They are:
Timothy Geithner. The former Secretary of the Treasury was considered a possibility for the position until he apparently told the president that he didn't want it.
Donald Kohn. Kohn is a former vice chairman of the Fed under Bernanke and a long-time (four decades!) staffer of the organization. Kohn only emerged as a candidate this week, when the president mentioned him during a meeting with Capitol Hill Democrats.
His name was such a surprise that the Washington Post quickly put together a "meet Donald Kohn"-style post. The highlights? "He was a reluctant supporter of unconventional policy;" "He is apolitical;" "He would be the oldest newly appointed Fed chair." (These are good things to throw out while you wait for your hamburgers to cook this weekend. Credit the Washington Post when you do so.)
Larry Summers. Summers served as Treasury Secretary in the Clinton administration, then becoming the president of Harvard University. In the Obama administration, he served as director of the National Economic Council, an advisory body to the president on economics. Prior to his work at Treasury, Summers was the chief economist at the World Bank.
Summers is the only one of the three top candidates without experience at the Fed. He is also the most controversial candidate, which we'll describe further below.
Janet Yellen. Yellen, a native New Yorker, is the current vice chair of the Fed. She, too, is a Clinton administration vet, having led the Council of Economic Advisors in the late '90s. In 2004, she became president of the Federal Reserve Bank of San Francisco, and then joined the board of the Fed in 2010.
This list is not final. There's still a lot of time in which Obama can introduce new options. He does need to build political support for his choice, but a relatively popular wild card — such as a newly inspired Tim Geithner — could sneak in.
Who supports each candidate?
So far, the debate has basically been between Summers and Yellen. (Obviously, since Kohn's name wasn't mentioned before this week.) But that debate has been spectacularly contentious.
Part of that stems from Summers' history. When he was president of Harvard, Summers made now-infamous comments about the difference between men and women in certain academic fields. Those comments were somewhat oversimplified to imply that Summers thought women were worse at math and science. As it became apparent that his primary opponent for the Fed job would be Yellen, gender quickly became an issue.
But most of the contentiousness stems from the economic policies at hand — as you might hope. Friday's Times article — which is basically an outline of the pros and cons on Summers — summarizes:
Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, publicly argued in a recent commentary on CNN/Money that Mr. Obama should pick Ms. Yellen, because “unlike Larry Summers, Tim Geithner and other Bob Rubin minions frequently mentioned in the financial press as potential Bernanke successors, she was not part of the deregulatory cabal that got us into the 2008 financial crisis.” Dozens of Democratic members of Congress have publicly thrown their weight behind Ms. Yellen, including House minority leader Nancy Pelosi of California and the Senate’s second-ranking Democrat, Richard Durbin of Illinois.
In other words, critics note that policies that probably contributed to the economic meltdown — lax or decreased oversight of financial institutions, for example — happened while Summers was Secretary of the Treasury. At this point, you can mention the 1999 repeal of the Glass-Steagall Act with your barbecue compatriots. If they ask for more information on that, you're on your own.
Part of the reason for that meeting with Democrats in which Obama name-dropped Kohn was to assuage concerns over Summers' economic priorities. As NBC News reported, "Rep. Gerry Connolly, D-Va., characterized Obama’s response as a 'powerful' and 'full-throated defense'" of Summers. (Our colleagues at Quartz have a different opinion.)
Who is going to be picked?
That "full-throated defense" was in part because Obama is leaning toward Summers. Again, The Times: "Mr. Summers, who the president said had become something of a 'progressive whipping boy,' appears to be a strong contender to succeed Ben S. Bernanke as chairman of the Federal Reserve."
In April, as it became apparent that Bernanke's departure was going to happen, the Washington Post handicapped the then-contenders. Its determination? Yellen, 2-to-1 odds. Summers, 5-to-1. Geithner, 11-to-1. Kohn, 20-to-1. Whether or not the paper stands by those figures is unknown. But they're good details to sprinkle into conversation.
Anything else I should know?
Not everyone is enthusiastic about the Fed. If your barbecue is being attended by a lot of white guys in their early 20s, Ron Paul will come up. During his 2008 bid for the presidency (and ever since), Paul argued fervently and somewhat esoterically against the Federal Reserve. His argument got oversimplified in the political conversation to some extent, such as when Texas governor and then-presidential candidate Rick Perry told an audience in Iowa in 2011 that Bernanke's actions could be "treasonous." Perry was basically making a "government is bad" argument. He dropped out of the race three months later.
Is it likely that this will actually come up at a barbecue?
If it does, go somewhere else.