If President Obama does eventually pick Janet Yellen to be the next Fed chairman, it will mean he went with his — at best — third choice. First was Tim Geithner, according to The New York Times: “Mr. Obama had long made clear [the job] was his for the taking. ” But the former Treasury secretary still doesn’t want the gig — and the same liberals who sunk Larry Summers probably are just fine with that decision.
Which brings us to the current Fed #2. Yellen is a well regarded monetary economist, someone with lots of central banking experience, and a liberal Democrat. She would be the first female Fed chair, a historic selection. And as Barclays points out, “Vice Chair Yellen has been among the most forceful advocates of unconventional policy easing.” Obama might will owe his second term to the QE programs Yellen backed.
So what is Obama’s big problem with her? As new research note from Morgan Stanley points out:
Recognize the revealed preference: the longer the President has taken in delaying an easy choice (picking Yellen), the more clearly he shows his reluctance to do so. According to the early talk, this was all about the “comfort zone” of the president, in that he was familiar with Summers but Yellen had not spent time in the Oval Office.
Indeed, that is the story Team Obama is sticking with, mainly. Again, the NYT: “The president’s advisers insisted throughout the summer that Mr. Obama was not averse to Ms. Yellen but simply more comfortable” with Summers, his former economic adviser during the Financial Crisis.
But those advisers also mention several secondary factors working against Yellen, including a lack of “crisis management experience and a working knowledge of financial markets” and need a for the Fed to have fresh thinking.” But the Bernanke Fed, with Yellen playing a key role, was highly innovative as dealt with the financial meltdown and its aftermath — including giving forward rate guidance to bond-buying programs to press conferences.
But the MS notes offers this tantalizing tidbit (italics mine): “Everyone who is not Yellen is less dovish and more willing to talk with market participants.” In other words, she does not have close relations to Wall Street like Geithner and Summers. Of course, that’s not necessarily a bad thing given the Fed’s regulatory role and the risk of cognitive capture. But the Obama White House — and its big bank contributors — might not see it that way.