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| A Hint by Obama Limits Bernanke’s Sway Over Markets | A Hint by Obama Limits Bernanke’s Sway Over Markets |
| (about 2 hours later) | |
| It can’t have been the send-off that the Federal Reserve chairman, Ben S. Bernanke, was hoping for. | It can’t have been the send-off that the Federal Reserve chairman, Ben S. Bernanke, was hoping for. |
| “He’s already stayed a lot longer than he wanted or he was supposed to,” President Obama told Charlie Rose in an interview that was broadcast on June 17 on Bloomberg TV, all but confirming that he wouldn’t reappoint Mr. Bernanke when his term expires at the end of this year. | “He’s already stayed a lot longer than he wanted or he was supposed to,” President Obama told Charlie Rose in an interview that was broadcast on June 17 on Bloomberg TV, all but confirming that he wouldn’t reappoint Mr. Bernanke when his term expires at the end of this year. |
| The best the president could muster was that Mr. Bernanke was an “outstanding partner along with the White House” in warding off “what could have been an economic crisis of epic proportions.” | The best the president could muster was that Mr. Bernanke was an “outstanding partner along with the White House” in warding off “what could have been an economic crisis of epic proportions.” |
| A White House spokesman said Mr. Obama meant that as praise, but supporters of the chairman, and even many who have disagreed with him on policy issues, were quick to question both the timing and substance of the comment. | A White House spokesman said Mr. Obama meant that as praise, but supporters of the chairman, and even many who have disagreed with him on policy issues, were quick to question both the timing and substance of the comment. |
| Not only did the comment come across as faint praise for a long-serving public servant who guided the nation’s monetary policy through a severe crisis, but its timing could also hardly have been worse. Mr. Bernanke was in the midst of important Federal Open Market Committee meetings and that very week began the delicate task of communicating the Fed’s plans to “taper” its latest round of quantitative easing. Markets went into convulsions and interest rates shot up. While no one blames Mr. Obama for that, adding another element of uncertainty about Fed policy may have contributed to the volatility. | Not only did the comment come across as faint praise for a long-serving public servant who guided the nation’s monetary policy through a severe crisis, but its timing could also hardly have been worse. Mr. Bernanke was in the midst of important Federal Open Market Committee meetings and that very week began the delicate task of communicating the Fed’s plans to “taper” its latest round of quantitative easing. Markets went into convulsions and interest rates shot up. While no one blames Mr. Obama for that, adding another element of uncertainty about Fed policy may have contributed to the volatility. |
| Others were critical of the president’s choice of the word “partner” to describe the Fed chairman’s role, since the Federal Reserve is an independent agency overseen by Congress. “Any Fed chairman would bristle at the idea they were a partner with a president,” Senator Bob Corker, the Tennessee Republican who serves on the Senate Banking subcommittee on financial institutions and consumer protection, told me this week. “I can understand why people who want to protect the independence of the Fed would be concerned.” | Others were critical of the president’s choice of the word “partner” to describe the Fed chairman’s role, since the Federal Reserve is an independent agency overseen by Congress. “Any Fed chairman would bristle at the idea they were a partner with a president,” Senator Bob Corker, the Tennessee Republican who serves on the Senate Banking subcommittee on financial institutions and consumer protection, told me this week. “I can understand why people who want to protect the independence of the Fed would be concerned.” |
| Others pointed out that the Fed has taken the lead in efforts to stimulate the economy as Congress has blocked the White House from further stimulus measures, and thus “partner” overstates the White House’s role in the recovery. | Others pointed out that the Fed has taken the lead in efforts to stimulate the economy as Congress has blocked the White House from further stimulus measures, and thus “partner” overstates the White House’s role in the recovery. |
| By contrast, although history hasn’t been kind to the legacy of Mr. Bernanke’s predecessor, Alan Greenspan, he received a send-off commensurate with his record five terms of service. The Fed itself announced Mr. Greenspan’s decision to retire, and in late October 2005, President George W. Bush announced his choice of Mr. Bernanke at a White House news conference where he lavished praise on the departing chairman as a “legend” who had “dominated his age like no central banker in history” while Mr. Greenspan looked on. On the same occasion, Mr. Bernanke said Mr. Greenspan “set the standard for excellence in economic policy making.” | By contrast, although history hasn’t been kind to the legacy of Mr. Bernanke’s predecessor, Alan Greenspan, he received a send-off commensurate with his record five terms of service. The Fed itself announced Mr. Greenspan’s decision to retire, and in late October 2005, President George W. Bush announced his choice of Mr. Bernanke at a White House news conference where he lavished praise on the departing chairman as a “legend” who had “dominated his age like no central banker in history” while Mr. Greenspan looked on. On the same occasion, Mr. Bernanke said Mr. Greenspan “set the standard for excellence in economic policy making.” |
| With many economists and investors fixated for months on the question of when and how quickly the Fed would curtail its extraordinary efforts to stimulate the economy, Mr. Bernanke’s suggestion, just two days after the president’s comments, that the Fed might taper its bond-buying earlier than expected sent markets reeling. Stocks fell across the globe and interest rates rose, with 10-year Treasuries hitting their highest yields since 2011. The volatility index, which was already rising the week before the president’s remarks, leapt to a new high for the year. | With many economists and investors fixated for months on the question of when and how quickly the Fed would curtail its extraordinary efforts to stimulate the economy, Mr. Bernanke’s suggestion, just two days after the president’s comments, that the Fed might taper its bond-buying earlier than expected sent markets reeling. Stocks fell across the globe and interest rates rose, with 10-year Treasuries hitting their highest yields since 2011. The volatility index, which was already rising the week before the president’s remarks, leapt to a new high for the year. |
| Mr. Obama “instantly made Ben a lame duck before the end of his term,” said one economist, who may be a future candidate for Mr. Bernanke’s position and, like many people I interviewed, asked not to be named. “He undermined his credibility both inside the Fed and in financial markets.” While Mr. Bernanke tried to reassure markets that the Fed would monitor the economy and respond as appropriate, this person said, “Part of the negative reaction in asset prices was because market participants have confidence in Ben, but now he won’t be around to oversee that.” | Mr. Obama “instantly made Ben a lame duck before the end of his term,” said one economist, who may be a future candidate for Mr. Bernanke’s position and, like many people I interviewed, asked not to be named. “He undermined his credibility both inside the Fed and in financial markets.” While Mr. Bernanke tried to reassure markets that the Fed would monitor the economy and respond as appropriate, this person said, “Part of the negative reaction in asset prices was because market participants have confidence in Ben, but now he won’t be around to oversee that.” |
| People close to Mr. Bernanke told me that the chairman took the president’s comments in stride, but said he was concerned about the severe market reaction. “He wouldn’t want to feed stories about this when he’s trying to articulate a complex message about monetary policy,” one adviser said. | People close to Mr. Bernanke told me that the chairman took the president’s comments in stride, but said he was concerned about the severe market reaction. “He wouldn’t want to feed stories about this when he’s trying to articulate a complex message about monetary policy,” one adviser said. |
| The people close to the chairman said he had already told the president he wanted to leave at the end of his term. He is expected to return to teaching and research at Princeton, where he delivered this year’s baccalaureate address. He quipped in the speech that his remarks had “nothing whatsoever to do with interest rates” and observed that life was unpredictable. | |
| Senator Corker, who as an advocate for price stability is seen as more hawkish on monetary policy than Mr. Bernanke, said he had breakfast with Mr. Bernanke a few weeks ago. “I couldn’t imagine him wanting to be reappointed,” the senator said. “He’s never confided in me, but I’ve never gotten the sense that he wanted to serve beyond this term.” Others close to Mr. Bernanke agreed with that assessment, but added that if asked by the president to do so, he would stay. | Senator Corker, who as an advocate for price stability is seen as more hawkish on monetary policy than Mr. Bernanke, said he had breakfast with Mr. Bernanke a few weeks ago. “I couldn’t imagine him wanting to be reappointed,” the senator said. “He’s never confided in me, but I’ve never gotten the sense that he wanted to serve beyond this term.” Others close to Mr. Bernanke agreed with that assessment, but added that if asked by the president to do so, he would stay. |
| Through a spokeswoman, Mr. Bernanke declined to comment. When asked at his news conference last week about the president’s remarks, Mr. Bernanke responded coolly: “We just spent two days working on monetary policy issues, and I would like to keep the debate, discussion, the questions here on policy. I don’t have anything for you on my personal plans.” | Through a spokeswoman, Mr. Bernanke declined to comment. When asked at his news conference last week about the president’s remarks, Mr. Bernanke responded coolly: “We just spent two days working on monetary policy issues, and I would like to keep the debate, discussion, the questions here on policy. I don’t have anything for you on my personal plans.” |
| But underscoring the perception that Mr. Bernanke is now a lame duck, two senior officials — William C. Dudley, the president of the Federal Reserve Bank of New York, and Jerome H. Powell, a Fed governor — tried to reassure investors and calm markets this week. “Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” Mr. Powell said in a speech on Thursday. | But underscoring the perception that Mr. Bernanke is now a lame duck, two senior officials — William C. Dudley, the president of the Federal Reserve Bank of New York, and Jerome H. Powell, a Fed governor — tried to reassure investors and calm markets this week. “Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” Mr. Powell said in a speech on Thursday. |
| Others told me the president’s remarks needed to be put in the broader perspective of Fed policy. “I certainly agree that you don’t want to add uncertainty at a time like this,” said Jim O’Sullivan, chief United States economist for High Frequency Economics, an independent research firm. “It would have been better not to have those comments as a news item. But it’s not the main factor causing the market turmoil. You can’t really blame the surge in bond yields on that comment. Arguably, the markets overreacted, but markets do overreact.” | Others told me the president’s remarks needed to be put in the broader perspective of Fed policy. “I certainly agree that you don’t want to add uncertainty at a time like this,” said Jim O’Sullivan, chief United States economist for High Frequency Economics, an independent research firm. “It would have been better not to have those comments as a news item. But it’s not the main factor causing the market turmoil. You can’t really blame the surge in bond yields on that comment. Arguably, the markets overreacted, but markets do overreact.” |
| The president “has to pull off a delicate balancing act,” said Douglas J. Elliott, a fellow at the Brookings Institution. “You don’t want to undercut the Fed chairman by making it more obvious than it is that he’s a lame duck. But he is. It’s not out of the question that he would choose to stay on, but it seems extremely unlikely. Most market participants already knew that.” | The president “has to pull off a delicate balancing act,” said Douglas J. Elliott, a fellow at the Brookings Institution. “You don’t want to undercut the Fed chairman by making it more obvious than it is that he’s a lame duck. But he is. It’s not out of the question that he would choose to stay on, but it seems extremely unlikely. Most market participants already knew that.” |
| Everyone I spoke to agreed that President Obama was likely to appoint someone more “dovish” on monetary policy than Mr. Bernanke — that is, someone who favors an easy monetary policy to raise employment and worries less about inflation. That would seemingly include the Fed vice chairwoman, Janet L. Yellen, widely viewed as the front-runner to succeed Mr. Bernanke. Paradoxically, the market reacted to the president’s remarks as if both Mr. Bernanke and his likely successor had become more hawkish, and thus more inclined to raise rates. | |
| “If people were really worried that the new Fed chairman is likely to be more dovish — and the current favorite has that reputation — you’d think they’d be snapping up inflation hedges,” Mr. O’Sullivan said. “But they’re not. Real yields are going up. The markets don’t seem to be too worried about a dovish Fed.” | “If people were really worried that the new Fed chairman is likely to be more dovish — and the current favorite has that reputation — you’d think they’d be snapping up inflation hedges,” Mr. O’Sullivan said. “But they’re not. Real yields are going up. The markets don’t seem to be too worried about a dovish Fed.” |
| Market reactions aside, the end of the Bernanke era at the Fed seems to be approaching. He has his critics on both the right and left, but everyone I spoke to praised Mr. Bernanke’s record. “I thought he handled himself very well during the crisis, and for that I have a lot of respect for him,” Senator Corker said. “I understand what he was trying to do with quantitative easing, and although we’ve had some policy differences, I think he’s handled that in a very artful and effective way.” | Market reactions aside, the end of the Bernanke era at the Fed seems to be approaching. He has his critics on both the right and left, but everyone I spoke to praised Mr. Bernanke’s record. “I thought he handled himself very well during the crisis, and for that I have a lot of respect for him,” Senator Corker said. “I understand what he was trying to do with quantitative easing, and although we’ve had some policy differences, I think he’s handled that in a very artful and effective way.” |
| Still, as the end of the year nears, “He’ll become less and less relevant, and the trade is only halfway done,” the senator added. “The new Fed chairman has to unload the huge portfolio that they have,” and Mr. Bernanke’s “successor has to be someone who has the ability to handle these complexities in a very delicate and thoughtful way.” | Still, as the end of the year nears, “He’ll become less and less relevant, and the trade is only halfway done,” the senator added. “The new Fed chairman has to unload the huge portfolio that they have,” and Mr. Bernanke’s “successor has to be someone who has the ability to handle these complexities in a very delicate and thoughtful way.” |
This article has been revised to reflect the following correction: | This article has been revised to reflect the following correction: |
| Correction: June 28, 2013 | Correction: June 28, 2013 |
An earlier version of this column misstated the occasion of Mr. Bernanke’s speech at Princeton. It was the baccalaureate service, not the commencement. | An earlier version of this column misstated the occasion of Mr. Bernanke’s speech at Princeton. It was the baccalaureate service, not the commencement. |