Larry Summers is out for Federal Reserve chairman. That probably means Janet Yellen is in.
There are two reasons why one might think Yellen wouldnt be named to the Federal Reserve. One is that President Barack Obama or his key advisers think she would do a bad job. The other is that the White House believes that nominating her would be a dangerous capitulation – it would show they could be pushed around by liberal Democrats.
But the line from the White House has never been that Yellen is a bad choice. In fact, theyve been at pains to say shes absolutely terrific – an incredible candidate whom theyd be thrilled to name if there wasnt, remarkably, an even more incredible candidate in Summers.
As for the idea that it would be bad optics to shatter a glass ceiling and appoint the insanely qualified, widely respected vice chair of the Fed – thats the kind of Washington nuttiness this White House typically prides itself in being above.
The case against Summers has been overblown. Hes both much more concerned with the poor and middle class, and much less interested in deregulation, than his critics gave him credit for.
The White House favored him, in part, because they thought hed be more effective at fighting unemployment and regulating Wall Street than Yellen. Their progressive critics, of course, disagreed.
But amid the heated back-and-forth over Summers, the strength of the case for Yellen has been obscured. At times, shes been made out to be an anybody-but-Summers candidate. Shes not. Here are five reasons why.
1. Shed be the most qualified Fed chair in memory.
Ben Bernanke had three years on the Feds Board of Governors when he was named chairman. Paul Volcker had four years leading the Federal Reserve Bank of New York before he got the call. Alan Greenspan had never worked at the Fed at all.
On sheer Fed experience, Yellen blows them out of the water. She led the Federal Reserve Bank of San Francisco from 2004 to 2010 and has been vice chair of the Fed since then. So shes served across multiple chairmen, in multiple positions, during good economic times and during the depths of the financial crisis. Experience isnt everything, of course, but it matters - particularly when the Fed is in such uncharted waters.
2. She got the big calls right.
The Feds job, put simply, is to predict the path of the economy and put in place the right policies to keep employment high and inflation low. In 2006 and 2007 – and, frankly, in 2010 and 2011 – the Fed got that basic job of prediction wrong. It didnt see the financial crisis coming, and it didnt see the slow recovery.
Yellen was an exception. If you go back to the Feds December 2007 transcripts – the most recent we have – youll find the Fed predicting that the economy would avoid recession. Youll also find Yellen voicing a prescient note of pessimism. The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real, she warned. In ensuing years, Yellen pushed for the Fed to do more to combat an employment problem that she didnt see abating – advice that Bernanke and the rest of the Federal Open Market Committee eventually followed when their optimistic forecasts proved terribly wrong.
3. We still need someone who cares – and cares a lot – about unemployment.
According to the best data we have, the economy added 169,000 jobs in August – which if sustained would mean well close the jobs gap sometime in 2023. We also learned that wed added 74,000 fewer jobs than we thought in June and July. The share of adults who are in the labor force is also at a scary low.
We desperately need a Fed chair who is serious about combating unemployment, rather than one itching to get the Fed back to its traditional role as a quiet, technocratic inflation fighter. In recent years, Yellen has been the Feds strongest and most persistent voice in favor of doing more to fight unemployment. Appointing her would be a signal to the markets – and everyone else – that the Fed isnt simply going to accept the status quo as Americas new normal.
4. Shes a consensus pick – at least outside the White House.
This Fed process has been a debacle. The Obama White House has let Summers and Yellen twist in the wind for months now. For various reasons, the race has rattled Wall Street, alienated key parts of the monetary policy community and infuriated many congressional Democrats – along with other key White House allies such as labor.
Yellen, however, is favored by all of those groups. That means the Obama administration can end this with a pick most everyone is happy with.
5. Its time to shatter the glass ceiling.
As former FDIC chairwoman Sheila Bair wrote: There is one segment of our federal government that has yet to break the glass ceiling. It is the segment most directly involved in overseeing the nations financial markets and the big financial institutions that dominate them. The Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the two big bank regulators ... have never had females at their helms.
These things matter. One consequence that has been on sharp display during this process is that because everyone who has ever served in these positions has been male, people end up with a lot of stereotypically male qualities in their assumptions of what it takes to effectively run these organizations.
The choice of Federal Reserve chair cant and shouldnt be based on gender. But as is often the case with these things, in order to even be considered for the post, Yellen has had to amass much more experience, and much broader support, than previous male nominees have required. So this is a moment where the candidate with the most experience and the most support would also be a historic, glass-ceiling-shattering choice. Thats quite an added benefit.