The Fed Is At Risk Of Losing Janet Yellen Altogether

Ben Bernanke's term as Chairman of the Federal Reserve ends this year, and many expect him to retire.

Currently, Vice Chair Janet Yellen is the favorite to take the vacated seat. And the controversial former Treasury Secretary Larry Summers is another frontrunner.

Yellen is highly respected, and she's also considered the most accurate forecaster at the Fed.

"See her musings …at those FOMC meetings when she took on her colleagues over the housing bubble (the one that Greenspan and Bernanke never saw) — plus she absolutely nailed the recession call in late 2007, a time when almost every economist on Wall Street was publishing about 'soft landings'," said David Rosenberg.

While everyone attempts to handicap the odds of who'll be leading the Fed, we have to consider what a Summers Fed Chair could mean for the composition of the Fed.

Cumberland Advisors' David Kotok pondered the matter in a recent post (emphasis added):

...The debate here is centered on whether Summers has political baggage. He certainly does. Does his loyalty to Obama trump his political baggage? It may. Did his questionable comments, as President of Harvard, regarding female aptitude in math and science hurt him? They might have. Is the option of a appointing a woman of Janet Yellen's caliber as Fed Chair a factor that might weigh heavily in this selection by President Obama? It might.

Another speculative issue here is what happens if Summers becomes chair, is confirmed by the US Senate, and takes office as Fed Chairman in 2014. Does Yellen then leave the board? If she does, what does her absence do to alter the composition of the Fed board? Remember, she is currently the Vice Chair, serving an extended term. Will she stay if Summers is appointed Chair? All these are questions without answers.

Looking at the rest of the board, one can see the possibility of substantial change in the Fed board within one year, say, if Ben Bernanke is replaced by Lawrence Summers, Janet Yellen leaves because she was not selected, and Sarah Bloom Raskin moves to the Treasury. Elizabeth Duke has already indicated she is leaving, and Jerome Powell’s term ends in 2014. The Fed board’s current composition of seven experienced members could be reduced to Jeremy Stein, Daniel Tarullo, and five new people....

Indeed, it's one thing to not have Yellen as the Fed Chair. It's another to not have Yellen at the Fed altogether.