This is a rough draft of an Op-Ed I am writing for the New York Times that should be out in the next day. I am putting it behind the paywall so the Times version doesn’t get pre-empted by this version in any way. Some of the language may change but the general gist here is similar to what Sheila Bair has said, namely that Janet Yellen is imminently qualified for the Fed Chair position. I think it makes no tactical or strategic political sense to pass her over for a male candidate – because it would rightly be considered a ‘passing over’ and need serious explanation or clear examples of policy differences.
That said, I cannot support the Fed’s QE and zero rate policies because I believe they are toxic. So, I am of two minds on this. The practical reality is that Obama is only going to appoint someone who supports monetary stimulus. And this being the case, I am comfortable with Yellen – much more so than Summers.
For months now, it has been widely assumed that present Federal Reserve Chair Ben S. Bernanke would not seek to be appointed for another term by President Obama. During that time, Fed Vice Chair Janet Yellen, has taken on frontrunner status amongst those thought likely to be appointed. Yellen would be the first female head of a major central bank in history. She is considered a close ally of Chairman Bernanke during the Fed’s unprecedented post-financial crisis balance sheet expansion used first to stop the crisis and later to maintain economic growth in the US. But, aggressive monetary policy has brought the Fed into the spotlight as never before, making the selection process for Bernanke’s replacement an extremely important political event.
Janet Yellen has all of the right qualifications: two top-flight economics degrees, work as a tenured professor at University of California-Berkeley, head of the Council of Economic Advisors, six years as head of the Federal Reserve Bank of San Francisco, four years as a voting member of the Federal Reserve’s Open Market Committee and three years as Vice Chairman of the entire Federal Reserve System. The Wall Street Journal recently scored fourteen Fed policymakers on 700 predictions they made on growth, jobs, and inflation during the tumultuous period from 2009-2012. According to the report, “[t]he most accurate forecasts overall came from Ms. Yellen”. Furthermore, Fed minutes have revealed that Yellen was one of the only top Fed policy makers who warned about the housing bubble before the crisis. This is a very impressive background and track record. Despite significant policy differences with Yellen, Former FDIC head Sheila Bair summed up the pro-Yellen case best, writing that “Yellen is clearly the most qualified successor to follow Ben Bernanke. There is no reason to pass her over for less-qualified males.” I agree.
Yet, about three weeks ago, former Treasury Secretary and Obama National Economic Council Director Larry Summers started to take frontrunner status. According to a recent Bloomberg article, part of the reason that President Obama is considering ‘passing over’ Yellen has to do with familiarity with Summers and Summers’ extensive experience dealing with financial crises during the Clinton and Obama administrations. Moreover, Summers also appears to be more hawkish than Yellen. And given legitimate and mounting concern that Fed policy is bleeding savers through zero rates and causing investors to make dangerous and leveraged bets by reaching for yield, selecting someone with a more hawkish stance could play well for the President strategically.
Nevertheless, in not selecting Yellen, I believe the President would be making a major political blunder. Yellen is the obvious candidate given her background, track record, stature at the Fed and the continuity she would provide at this critical juncture. Selecting Summers would send the wrong message to women. That Summers resigned as President of Harvard University in 2006 after comments deemed sexist adds to this. Appointing Summers over Yellen also sends a bad message about how the system still works to benefit insiders during the Obama administration. Let’s remember that we now live in the aftermath of the worst financial crisis in three-quarters of a century – one preceded by what the FBI has called an epidemic of fraud. Yet, not a single top banking industry insider has even been charged or prosecuted for actions related to this crisis. With that background, not appointing Yellen would be the antithesis of ‘change you can believe in’ and I believe the President’s political base would see it as such.
Why Yellen should be the next Fed Chair
This is a rough draft of an Op-Ed I am writing for the New York Times that should be out in the next day. I am putting it behind the paywall so the Times version doesn’t get pre-empted by this version in any way. Some of the language may change but the general gist here is similar to what Sheila Bair has said, namely that Janet Yellen is imminently qualified for the Fed Chair position. I think it makes no tactical or strategic political sense to pass her over for a male candidate – because it would rightly be considered a ‘passing over’ and need serious explanation or clear examples of policy differences.
That said, I cannot support the Fed’s QE and zero rate policies because I believe they are toxic. So, I am of two minds on this. The practical reality is that Obama is only going to appoint someone who supports monetary stimulus. And this being the case, I am comfortable with Yellen – much more so than Summers.
For months now, it has been widely assumed that present Federal Reserve Chair Ben S. Bernanke would not seek to be appointed for another term by President Obama. During that time, Fed Vice Chair Janet Yellen, has taken on frontrunner status amongst those thought likely to be appointed. Yellen would be the first female head of a major central bank in history. She is considered a close ally of Chairman Bernanke during the Fed’s unprecedented post-financial crisis balance sheet expansion used first to stop the crisis and later to maintain economic growth in the US. But, aggressive monetary policy has brought the Fed into the spotlight as never before, making the selection process for Bernanke’s replacement an extremely important political event.
Janet Yellen has all of the right qualifications: two top-flight economics degrees, work as a tenured professor at University of California-Berkeley, head of the Council of Economic Advisors, six years as head of the Federal Reserve Bank of San Francisco, four years as a voting member of the Federal Reserve’s Open Market Committee and three years as Vice Chairman of the entire Federal Reserve System. The Wall Street Journal recently scored fourteen Fed policymakers on 700 predictions they made on growth, jobs, and inflation during the tumultuous period from 2009-2012. According to the report, “[t]he most accurate forecasts overall came from Ms. Yellen”. Furthermore, Fed minutes have revealed that Yellen was one of the only top Fed policy makers who warned about the housing bubble before the crisis. This is a very impressive background and track record. Despite significant policy differences with Yellen, Former FDIC head Sheila Bair summed up the pro-Yellen case best, writing that “Yellen is clearly the most qualified successor to follow Ben Bernanke. There is no reason to pass her over for less-qualified males.” I agree.
Yet, about three weeks ago, former Treasury Secretary and Obama National Economic Council Director Larry Summers started to take frontrunner status. According to a recent Bloomberg article, part of the reason that President Obama is considering ‘passing over’ Yellen has to do with familiarity with Summers and Summers’ extensive experience dealing with financial crises during the Clinton and Obama administrations. Moreover, Summers also appears to be more hawkish than Yellen. And given legitimate and mounting concern that Fed policy is bleeding savers through zero rates and causing investors to make dangerous and leveraged bets by reaching for yield, selecting someone with a more hawkish stance could play well for the President strategically.
Nevertheless, in not selecting Yellen, I believe the President would be making a major political blunder. Yellen is the obvious candidate given her background, track record, stature at the Fed and the continuity she would provide at this critical juncture. Selecting Summers would send the wrong message to women. That Summers resigned as President of Harvard University in 2006 after comments deemed sexist adds to this. Appointing Summers over Yellen also sends a bad message about how the system still works to benefit insiders during the Obama administration. Let’s remember that we now live in the aftermath of the worst financial crisis in three-quarters of a century – one preceded by what the FBI has called an epidemic of fraud. Yet, not a single top banking industry insider has even been charged or prosecuted for actions related to this crisis. With that background, not appointing Yellen would be the antithesis of ‘change you can believe in’ and I believe the President’s political base would see it as such.