In 1976, Janet Yellen was teaching macroeconomics at Harvard. One of her students was Larry Summers, "a young man already gaining a reputation for brilliance", says the Financial Times. Thirty-seven years on, lecturer and student have a very different relationship. They are neck-and-neck in a race for the most powerful financial job in the world.
A few months ago, Yellen (currently number two at the Fed) was seen as a shoo-in for the chair when Ben Bernanke leaves in January. But Summers has been lobbying so effectively that he's seen by some as President Barack Obama's "first choice", says The Times. A controversial figure at the best of times (see below), opponents have mounted a concerted Stop Larry' campaign. That's left Yellen demoted in the public debate to a cipher, says Bloomberg: the homely-looking woman with white hair and rosy cheeks, who is the only thing standing between Summers and the Fed.
If Yellen does succeed, Bernanke, she'll make history as the first female central banker of "an advanced nation", says The New Yorker (assuming "you don't count Russia", where Elvira Nabiullina is set to run the central bank). In a field "noted for its conservatism and adherence to free-market orthodoxy", Yellen "has long stood out as a lively and liberal thinker", deeply concerned about the human consequences of monetary policy. She's credited as a driving force behind Bernanke's "forward guidance" policy of making an interest rate rise conditional on falling unemployment.
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Born in Brooklyn in 1946, Yellen became interested in economics as a way of thinking logically about how to help people, says The New York Times. Having studied at Yale under Nobel laureate James Tobin whose Keynesian outlook she inherited she married another, George A Akerlof. She joined the Fed in 1994. At 66, she sees herself as "in the prime of a late-blooming career". Described by one colleague as "a small lady with a large IQ", Yellen is unstuffy and laughs easily. "The force of her arguments can catch people by surprise."
Her perceived "dovish" outlook on inflation has annoyed some on Wall Street, says Businessweek. One outraged Nomura client reportedly observed that "if Karl Marx was in charge of the world, he'd have Janet Yellen as his central bank governor". That's an exaggeration. Indeed, Yellen is quite capable of turning hawkish if need be.
In 1996, she strode into Alan Greenspan's office to demand higher rates to counteract the overheating economy. "There was an awkward silence," recalls a colleague. If she gets the nod from Obama, "it's the bond market vigilantes who'll need the most persuading" markets may want to push her resolve. According to Yale economist Robert Shiller, she has "a personal dignity and a sort of gentle firmness". It would be interesting to see it tested.
Does Wall Street really need a troublemaker?
The bitter contest between Summers, Yellen and their supporters "isn't really about monetary policy" (the two have similar views). It's the question of financial regulation that gives Summers' Democrat opponents in Congress "heartburn", says Ezra Klein on Bloomberg.
As treasury secretary under Clinton, they charge, he pushed through the deregulatory changes that contributed to the crash. "That he has taken a bunch of money from Wall Street in the interim doesn't make them any happier They think he can't be trusted to regulate Wall Street". But Obama should pick him anyway, says Bradford DeLong in the FT.
We live in extraordinary times and for all Yellen's proven success as an economist and consensus-builder Summers is "the most creative thinker around". Obama's choice is ultimately that of a homeowner considering taking out disaster insurance, says Michael J Casey on WSJ.com. "If things go as planned, Summers' personality could get in the way of a smooth return to normality. But he could be worth the money if some unwelcome disaster strikes".
Whatever the case, Obama must make his mind up fast, says Mohamed El-Erian in The Washington Post. The longer the current "circus" continues, the greater the risk of "collateral damage" to the economy. The president could of course opt for a surprise candidate, says The Times. The little-known Donald Kohn is still in the running. Given the flak Obama will take whether he picks either Summers or Yellen, that may look increasingly tempting.
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