The big news over the weekend was Larry Summers withdrawing his name from the running as Chairman of the Fed. It looked like a sure thing, but maybe the vehemently anti-Summers media calls in recent weeks got to him. I don't know for sure what caused him to withdraw his name, but I don't think it matters as much as some might think. Janet Yellen, who is the likely front-runner, appears to some as the champion of a new Fed, but I don't think she'll really do anything that's all that different than what Chairman Bernanke has done. In fact, I think she's likely to just tow the Bernanke line. Here's why I think so.
Earlier this March Janet Yellen laid out her view of current monetary policy in a speech at the NABE. Here's the short version:
- She's a fan of clear and concise communication with the market just like Ben Bernanke.
- Forward guidance is a good thing and should be used effectively and often to communicate the Fed's outlook and potential policies.
- She's a big time dove, which means she's very concerned with the employment picture.
- She thinks the current unemployment rate is an enormous burden on the US economy.
- She thinks QE has been "reasonably efficacious in stimulating spending."
- She is a fan of QE's wealth effect via higher stock prices and house prices.
- She would not be in favor of tightening policy unless growth picks up while employment measures improve.
- She thinks the recent improvement as evidenced by the payrolls reports and unemployment date are insufficient measures of labor market health.
The shorter version:
- Janet Yellen won't alter Ben Bernanke's current policies. In fact, she might be even more skeptical of tightening policy soon given the recent decline in real GDP even as the unemployment rate has declined.
Janet Yellen is, in my opinion, a better choice for Fed Chief than Larry Summers, but when the rubber meets the road, I don't see her doing much different than what Ben Bernanke is currently doing. And that makes this change in Fed chiefs a lot less consequential than the media is likely to imply.