Whoever follows Bernanke will have path marked out

The Federal Reserve under Ben Bernanke has committed itself to a monetary strategy for this year and beyond that will be difficult to undo under a new chairman.

Under Bernanke's leadership, the Fed has set out clear markers for the conditions that need to be met to moderate and eventually end its $85 million-a-month asset-purchase program and then begin increasing interest rates.

As a consequence, the identity of the chairman next year is unlikely to matter as much as it has in the past.

"Usually, the Fed chairman comes in with a clean slate to do whatever they want," said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and a former researcher with the central bank. "Whoever comes in this time is going to inherit a pretty rigid structure."

Bernanke's second four-year term as chairman ends Jan. 31. Though neither he nor the White House has said he'll step down, President Obama suggested just that in a TV interview last week, saying the Fed chief had stayed "longer than he wanted."

Bernanke has tried to make the policy-making Federal Open Market Committee (FOMC) more transparent and democratic. By de-emphasizing the role of the chairman in the committee's deliberations, he has made it harder for his successor to change the course of policy, said Roberto Perli, a former Fed official who is now a partner at Cornerstone Macro L.P. in Washington.

"The FOMC under a potential new chair would be largely the same as the current one, and it is unlikely that FOMC members would relinquish their authority or renege on their own policy commitments simply because a new chair may have different views," Perli wrote in a June 19 clients note.

Assuming Bernanke is leaving the Fed, Obama probably would name someone whose views are not all that different.

"I'd be quite surprised if the president nominated a chairman who wasn't broadly in agreement with the policies that the current chairman has led on the committee: an emphasis on getting the unemployment rate down and having economic activity be stronger, an emphasis on communication and transparency," ex-Fed vice chair Donald Kohn said.

A leading contender to replace Bernanke is the current vice chair, Janet Yellen, who led an FOMC subcommittee that focused on devising the central bank's communications strategy.

Since Yellen helped forge the policies, she'd probably be inclined to continue them, said Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities Inc. in New York and a former New York Fed economist. "I imagine the transition, whoever it is but likely her, being very seamless," LaVorgna said.

The next Fed chairman will be "inheriting the last vestiges of the current policy regime," said Eric Green, global head of rates, foreign exchange, and commodities research at TD Securities Inc. in New York. "Basically they're not going to have a lot to do that first year."

That will change after asset purchases end and the Fed prepares to start raising its benchmark interest rate, said Green, another former economist at the New York Fed. Then, the FOMC "will have an opportunity to completely define the ensuing regime - the rate-tightening regime."