Head of the Federal Reserve, Ben Bernanke, will see the end of his term in January and many expect him to resign before the end of the year. This leaves President Barack Obama with the difficult choice of choosing the new head of the Federal Reserve, one of the most influential economic decisions he’ll make in his run as Commander-in-Chief. Rumors of who could be Obama’s pick to replace Bernanke are down to two: Lawrence Summers and Janet Yellen.
Both of the candidates are highly respected, veteran economists with impressive resumes. Whoever gets chosen will have heavy influence over how mortgage rates will change in the coming years, so let’s take a look at the top candidates for head of the Federal Reserve and what they’re all about.
Yellen appeared to be the favorite as Bernanke’s replacement. She’s the “legacy pick,” as she’s the Fed’s Vice Chairman, and she won a number of polls conducted by MSNBC when they surveyed Wall Street workers on who they thought or would want to be the next Fed chairman. Her style has been compared to Bernanke’s delivery and leadership style which David Wessel of the Wall Street Journal describes as “[the] spokesman of the Fed…kind of, the explainer-in-chief in the economy.” As far as economic policy goes, she’s a “dove” (concerned with keeping interest rates low, less worried about inflation). The Economist argues that Yellen’s work as Fed Vice Chairman shows how she’ll act as chairwoman: pushing non-traditional policies (like bond buying) and making data driven, detailed decisions much like Bernanke.
After serving as Obama’s principal economic adviser from 2008-10, Larry Summers has rumored support from the President’s advisors to be Chairman of the Fed. He’s a former Harvard economist who arguably has more hands-on experience than Yellen, specifically in crisis management. The Economist predicts “a Summers Fed would be even bolder, but less predictable, than the Bernanke Fed.” That seems to be the unanimous criticism with Summers: While he’s brilliant candidate with years of experience, he’s a bit of a wild card. He’s criticized Fed policies in the past and has a big, vocal personality. While Yellen’s demonstrated through her policy what type of chairwoman she’d be, Summers hasn’t said much about monetary policy. This uncertainty could even affect the market if he’s chosen. The New York Times said it’s “estimated that [Summers becoming Fed Chairman] would reduce domestic economic growth by 0.5 to 0.75 percentage point over the next two years, which could reduce job creation by 350,000 to 500,000 jobs.”
It’s said that Summers currently has the best odds, but just a month ago, most publications were saying Yellen had it locked in. Whether you’re looking to see more of a character like Summers or more women in the banking world via Yellen, again, it’s a win/win. Both candidates are well-suited for the job and we’ll see Obama’s choice relatively soon. Who do you want to see running the Fed, Summers or Yellen?