President Barack Obama may be leaning toward former Treasury Secretary Larry Summers as the next head of the Federal Reserve, recent press reports say. But such a move could jolt markets, which have been expecting the dovish Janet Yellen to be the next central bank chief, analysts say.
"If Summers is appointed, then we many see markets correct as tapering will be expected to happen more quickly," said David Forrester, G10 foreign exchange and fixed income strategist at Macquarie Bank, referring to an unwinding of the Fed's monetary stimulus program for the economy.
Federal Reserve chairman Bernanke is expected to step down when his term ends in January. Yellen, vice chair of the Fed's Board of Governors, has been tipped as Bernanke's successor. But according to recent press reports, U.S. President Barack Obama may be leaning towards nominating Summers as the next head of the Fed.
According to a New York Times article last week, Obama is keen to have a Fed chairman who understands the importance of keeping inflation in check. Yellen has been quoted in the past saying reducing unemployment should be the primary focus of the Fed, even if that causes inflation to rise slightly above target.
"Yellen is a Fed insider and was part of the Federal Open Market Committee (FOMC) when QE [quantitative easing] was being implemented, while Summers questions the efficacy of QE," said Forrester, adding that there was likely to be a structural shift in U.S. monetary policy if Summers is appointed as next Fed chairman.
(Read more: Bernanke: Too early to tell when tapering will start)
Talk of an unwinding in the Fed's $85 billion-a-month bond-buying program unsettled markets in May and June, with stock and bond markets taking a beating, while the dollar strengthened.