White House Photo/Pete SouzaObama probably won't announce his choice to head up the Federal Reserve for another couple of months yet.
But the speculation and chatter is already getting very loud about who might replace Ben Bernanke (assuming Bernanke doesn't get re-appointed).
Multiple reports indicate that the two frontrunners are Janet Yellen (currently the Fed Vice-Chair) and the economist Larry Summers, who has held many positions, and who has been close to this White House, and who has a long history in Washington.
Among economists and Wall Street types, Yellen is seen as the front runner.
Among DC political chatterati types, Summer is viewed as the favorite. Ezra Klein of Wonkblog — who usually doesn't do much gossipy reporting — said last week that Summers was the favorite.
In an interview with the New York Times, Obama gave his clearest comments yet about what he's looking for in the role.
...what I’m looking for is somebody who understands the Fed has a dual mandate, that that’s not just lip service; that it is very important to keep inflation in check, to keep our dollar sound, and to ensure stability in the markets. But the idea is not just to promote those things in the abstract. The idea is to promote those things in service of the lives of ordinary Americans getting better.
And when unemployment is still too high, and long-term unemployment is still too high, and there’s still weak demand in a lot of industries, I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation, and if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.
Okay, so we said Obama's comments were his "clearest" but that doesn't mean they're clear.
Still, if you really want to do some word parsing (and that is what Fed Kremlinology is all about), then there might be some clues here.
UC Berkely econ grad student Carola Binder makes the case that this sounds Summers-esque. For one thing, even though he talks about the "dual mandate" he's also talking a lot about inflation and bubbles, which indicates someone of, perhaps, a more hawkish persuasion (i.e., not Yellen). Furthermore, the idea that monetary policy is a good tool for fighting bubbles doesn't sound like a continuation of Bernanke's approach (again, perhaps not good for Yellen).
Of course, this is all speculative, and trying to make something out of a few words, because people are interested.
The bigger picture is that Yellen and Summer as viewed as being pretty different, and it could be that the debate about who will lead the Fed becomes a bigger monetary policy issue for markets than the Fed exit itself, at least in the short term.
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- Ben Bernanke
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- Larry Summers