The push me, pull you on who will be named the next Federal Reserve Chairman continues. It looked for a while that Former Treasury Secretary Larry Summers was taking the lead. U.S. President Barack Obama is said to like Summers and more so after his stint as an adviser to the president during the most recent financial crisis.
But this week a former White House official, unnamed, was reported to have said that dysfunction at the Fed does worry some. The thinking is that the Fed Chair should be someone who can win the other Fed policy makers over with argument and persuasion. Summers is not known for his personal skills but more his intellectual acumen. Current Vice Chair Janet Yellen would at least imply continuity and has been central to key decisions by the Fed in recent years and is respected by other governors.
For investor purposes the key difference may be in the focus each would take at the Fed. Yellen is seen as less hawkish on inflation compared with Summers and more focused on stimulating economic growth. That would not necessarily be good for the dollar if stimulus is not tapered as quickly as expected. But a Fed chaired by Summers is seen as taking as much as 0.5 percent off GDP in the bid to be hawkish on inflation. That would not necessarily be good for the dollar either given the market has focused on the prospects for the U.S. economy relative to the rest of the world just as much as the tapering scenario.
Other differences are on regulation with Summers, on balance, arguing for less regulation than Yellen. Though that may not matter as much in the near term, investors do still remember how much deregulation under Presidents Bill Clinton and George W. Bush helped set up the conditions for the Great Financial Crisis and it may make Summers less palatable to investors.
Summers is still seen as the front runner but Yellen should not be ruled out. Yellen did not get to where she is by being less than candid in her beliefs and tough when she needed to be. With four other governors from the Fed system giving up their posts next year, perhaps Yellen would be a better bet. The decision will be Obama’s. The Fed may be his single biggest legacy in the first few years after he leaves office. An announcement is expected this month.