Who will be the next Federal Reserve chairman? This is the question economists, financial analysts, and political observers have been speculating about for a couple of months now.
According to numerous reports, the top two in the running for the post are former Treasury Secretary Larry Summers and current Federal Reserve Vice-chairwoman Janet Yellen. A couple other notable possibilities include former Israeli central bank head Stanley Fischer and former Federal Reserve Vice-chairman Donald Kohn. The question here is: of the two supposed front-runners, who is most likely to be a “yes-man” to the Obama Administration?
First, let’s consider Larry Summers. Larry Summers is a well-known independent thinker, having no problem ruffling some feathers to get what he wants. Dr. Summer’s prickliness certainly brings baggage with it. Some of the issues under which Summers has come under fire include comments about women’s ability in mathematics (interestingly, all Dr. Summers was doing was quoting some empirical research) and the Treasury’s involvement in the financial deregulation decisions during the 1990s.
What about Ms. Yellen? According to many political observers, insiders generally think an appointment of Ms. Yellen as the next Federal Reserve chairwomen would essentially mean no change in Federal Reserve policy. The main challenge ahead for Dr. Yellen (or Dr. Summers as well if selected, although, as noted, he’s much more difficult to predict) would be the gradual elimination of QE 3 once an unemployment rate of 6.5 percent is achieved, something Bernanke has already alluded to.
Dr. Yellen would also likely be outspoken in her criticism of a fiscal policy that reduces the costs of government (i.e. reducing government spending). The criticism of congressional Republicans’ desire to reduce the costs of government is nothing new. Bernanke took shots at reducing the costs of the federal government, mistakenly thinking that short-term displacement costs are worth the long-term economic benefit of a bigger private sector.
In addition to the end of QE 3 and continued criticism of fiscal policy, Dr. Yellen is known as a consensus builder, which, no doubt, means that she is more likely to be a “yes-man” to the administration.
In September, Obama is likely to announce his choice for the next head of the Federal Reserve. In reviewing past policy decisions and comparing the two personality types, it looks like Ms. Yellen is much more likely to be a conventionalist to the Obama Administration than the independent-minded Larry Summers. The mere fact that a consensus builder is being considered as a front-runner for the job as head of the Federal Reserve is likely discouraging to those who want a separation between politics and monetary policy.