It’s who you know
Why would anyone but Janet Yellen head the Federal Reserve? The Vice Chairman of the world’s most influential central bank ticks all the boxes. She has experience, brains and plays well with others. If judged by credentials alone, Yellen should be a shoo-in.
The 66-year-old economist is an old hand at monetary policy. She’s been Chairman Ben Bernanke’s deputy for three years, and head of the central bank’s San Francisco branch before taking her permanent seat on the policymaking Federal Open Market Committee. That gives her invaluable insights into how best to manage the Fed’s exit from its experimental policy of buying bonds that could end sometime next year.
Even criticism about her being too soft on inflation seems misplaced. As Fed governor in the 1990s, she advocated for rate increases behind closed doors. And her emphasis on job creation – the Fed’s other mandate – rather than prices has been the right call. Inflation has been benign for a decade and, if anything, is now trending too low.
Yellen’s intellectual credentials are also top-notch. She holds a doctorate in economics from Yale and taught at Harvard and Berkeley. But raw intelligence should be a given for anyone hoping to run an institution responsible for prodding the world’s biggest economy along while protecting it from excessive risk-taking. Other attributes matter more.
Like being an effective communicator. The Fed has a lot of explaining to do as it prepares to get out of the bond-buying business. Yellen, who helped craft the Fed’s more open communications strategy, is well suited to take the microphone. She’s mild-mannered yet tough. Investors will like that. She’s also able to argue her views without alienating those who disagree with her. That’s an essential talent for a leader who needs to corral consensus inside the Fed and, should the world take a turn for the worse, coordinate with other major central bankers overseas.
Other names mentioned for the job like President Barack Obama’s former top economic adviser Larry Summers or former Treasury Secretary Timothy Geithner may be closer to the commander-in-chief. But coziness with the president shouldn’t be the deciding factor in choosing Bernanke’s successor. In fact, Fed independence would seem to dictate quite the opposite.