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Fed’s openness heats up debate over next chief

NEW YORK — The unprecedented frenzy surrounding Federal Reserve chairman Ben Bernanke’s potential successor shows that Americans won’t let the central bank go back to its opaque and secretive ways.

The backlash that resulted from Bernanke’s bailouts during the financial crisis and his record expansion of the Fed’s balance sheet has pushed the central bank toward openness at the fastest pace in its 100-year history. His introduction of regular press conferences in 2011 is just one of his recent initiatives.

That scrutiny has persisted as the US economy has struggled to gain momentum and led to an unparalleled public debate over the next chairman, according to Sarah Binder, a senior fellow at the Brookings Institution in Washington who researches the relationship between the Fed and Congress.


The central bank’s decision to adopt unconventional policies has ‘‘heightened consequences of what the Fed does and who leads it,’’ Binder said. Such action ‘‘has so much impact on the economy and people’s lives.’’

Fed vice chairman Janet Yellen and Lawrence Summers, President Obama’s former top economic adviser, have been the focus of an intensifying public contest for Bernanke’s job. House and Senate Democrats have penned letters to the White House voicing support for Yellen, 66, and Obama defended Summers, 58, to his party’s lawmakers on July 31 against a barrage of criticism. Obama also has mentioned former Fed vice chairman Donald Kohn, 70, as a candidate.

Yellen’s ‘‘institutional knowledge and working relationships with current board members would provide for a smooth transition at a time when financial markets and middle-class Americans are counting on’’ the Federal Open Market Committee to ‘‘demonstrate thoughtful and deliberate leadership,’’ a group of female House Democrats led by Maxine Waters of California, the ranking Democrat on the Financial Services Committee, said in a July 31 letter to Obama.


While there have been many examples of senators lobbying ‘‘every president since George Washington’’ about appointments, Senate historian Donald A. Ritchie said in an interview that he wasn’t aware of any such campaigns for Fed chief during the prior 14 confirmations.

‘‘In the history of the Fed, there was never anything like this,’’ said Allan Meltzer, a professor of political economy at Carnegie Mellon University’s Tepper School of Business in Pittsburgh and the author of a multivolume history of the central bank.

Policy makers’ actions during the worst financial crisis since the Great Depression and its aftermath have been ‘‘fiscal in their nature’’ and invited political interference, he said.

Bernanke, 59, established the central bank’s role as the nation’s main rescue agent during the 18-month recession that began in December 2007 by using the Fed’s balance sheet to save Bear Stearns Cos. from collapse in March 2008. He gave out more than $2 trillion in emergency aid through that rescue and the rescue of American International Group, six loan programs, and currency swaps with other central banks.

With the target for the Fed’s benchmark rate stuck near zero since December 2008, Bernanke also has pursued three rounds of so-called quantitative easing that have swelled the central bank’s balance sheet to a record of more than $3.5 trillion.

Republicans, including House Speaker John Boehner of Ohio, have argued that the Fed’s stimulus programs have risked a rapid acceleration in prices. They’ve also championed a change in the Federal Reserve Act that would restrict the Fed’s focus solely to its goal of price stability.


‘‘For the next chairman to get back to independence will require a very strong chairman — a Volcker type — and those are not easy to find and even harder to confirm in this totally politicized environment,’’ Meltzer said.

Paul Volcker, 85, is remembered for his battle against inflation during his 1979 to 1987 tenure, when he allowed the federal funds effective rate to rise as high as 22 percent to tame annual price acceleration approaching 15 percent.