09/30/2013 01:26 pm ET Updated Nov 27, 2013

5 Reasons to Care Who Leads the Fed

The stock market rallied on September 16 when news broke that Lawrence Summers had withdrawn his name from consideration as the next Federal Reserve chairman, leaving current Fed insider Janet Yellen as the most likely choice. Obviously, the stock market feels it has a strong stake in the selection, but do most Americans feel it matters to them who is chosen to take over the Fed when Ben Bernanke's term expires?

Here are five reasons you should care about the leadership of the Fed:

  1. Fed decisions affect your mortgage rates. This may determine whether you can buy a house in the future, or refinance your current mortgage. The U.S. recently saw the lowest mortgage rates on record as a result of Fed policy, and today's mortgage rates are more than a point higher because the Fed simply hinted that a change in policy might be forthcoming.
  2. The Fed also affects savings account rates. Many Americans may have benefited from low mortgage rates, but millions have seen their interest income ravaged by an environment in which the best interest rates on savings accounts stand at less than 1 percent. This is also a direct result of Fed policy, and if the Fed does not find a way to back away from its super-low interest rate position, Americans are going to have to rethink how they fund their retirements.
  3. Job growth is a primary objective of Fed policies. Right now, the Fed has a specific goal of getting the U.S. unemployment rate down to 6.5 percent or below, a level it hasn't been down to since October 2008. If you are looking for work, this is of vital importance to you, and even if you already have a job, a lower unemployment rate would give you more job security and more leverage to negotiate raises.
  4. The Fed is a watchdog against inflation. The Federal Open Market Committee (FOMC), which makes decisions on monetary policy, defines its mission as striking a balance between encouraging employment growth and keeping inflation under control. Inflation hasn't been a front-burner issue recently, in part because a soft economy has helped keep it quiet. However, the Federal Reserve under former chairman Paul Volcker played a key role in getting control of soaring inflation rates in the early 1980s. The Fed is there to try to prevent inflation from getting out of hand again, and to wrestle it to the ground if it does.
  5. The world's eyes are on the Fed. Despite its economic, budget and political problems, the U.S. still attracts investments from around the world because of the confidence in its institutions. The Fed chairman plays an important role in nurturing that confidence, especially in times of trouble.
Ultimately, perhaps the last of these five points is the most dependent on who is chosen as Fed leader. While the others are significant economic factors, it is important to remember that with regards to those decisions, the Fed is a team, not a solo act. To put this in perspective, at the last FOMC meeting, nine members voted in favor of continuing the Fed's current interest rate policies, with only one voting against.

In other words, the next Fed chairman will have plenty of support in making decisions, but will be alone in the spotlight when it comes to fostering public confidence in those decisions.