Many of the economic advisers whom President Obama consults with favor Larry Summers to be the next chair of the Federal Reserve. But what is it, exactly, that they have against Janet Yellen, the current No. 2 leader of the central bank?
In the course of reporting the profile that Ylan Mui and I wrote of Yellen (it ran over the weekend. Read it!) I came across aspects of the vice chairwoman's style and experience that help explain why Obama's inner circle of economic advisers has little apparent enthusiasm for her as Fed chief. Our sources were primarily people who have worked with Yellen at various stages of her career, and they overwhelmingly spoke favorably of her intellect, diligence and approach to leadership. But there are some aspects of how she operates that are different from the qualities that Obama insiders favor.
When she arrived at the Fed as its No. 2 official in 2010, Yellen carved out a different kind of role from her two immediate predecessors in the job, Don Kohn and Roger Ferguson. Kohn and Ferguson worked much like deputies to the chairman, acting as close confidantes to Ben Bernanke and Alan Greenspan and then helping them carry out their decisions.
Yellen has a perfectly solid relationship with Bernanke, as best as I can tell, but she's more of her own thinker within the institution. She has spent her time as vice chairwoman urging Bernanke and her other fellow policymakers to shift policy to try to do more to combat unemployment, and thinking through ways to do just that. She even had one economist who functioned for a time as something of a de facto chief of staff, Andrew Levin. And people dealing with her within the Fed have viewed her not so much as Bernanke's emissary but as her own intellectual force within the organization.
So what does that have to do with how Obama's advisers might view her? They are big on the team player concept, people diving in together to sort through the hard and messy challenges they face. When Timothy Geithner was New York Fed president, for example, he, Bernanke, and Kohn were very much a team plotting the central bank's response to the financial crisis (other key players in that tight-knit group were Bill Dudley, then the head of the New York Fed's markets desk, and Kevin Warsh, then a Fed governor in Washington). In the early months of the Obama administration, the same could be said of the group that included Geithner, Summers, Gene Sperling and others who are now influential voices advising the president on the decision.
Throughout this time, Yellen was running the San Francisco Fed -- very effectively, according to interviews with people who worked with her closely before and during the crisis. But she was on the outside looking in regarding some of the seat-of-the-pants decisions that were being made over how to rescue the American economy.
A second, and related, reason that Yellen's leadership style isn't a great mesh with the Obamaites is also one of her strengths. She is always meticulously prepared, a careful and systematic thinker who chooses her words carefully. In a Fed policy committee meeting or a gathering of international central bankers, she typically scripts herself in advance and reads those prepared comments.
She is methodical, not manic. And the prevailing style of the White House insiders advising on the decision leans a bit more toward manic. Geithner, for example, jumps from meeting to meeting, from hearing to phone call, without so much as a set of talking points to work from. The question is how Yellin's cautious approach would work when she is dealing with the full panoply of issues that a Fed chair must grapple with.
Third, the president very clearly frets about the risk of financial bubbles and wants a Fed chief who will be attuned to staving them off. As David J. Lynch of Bloomberg points out, four times in five days Obama recently referred to the importance of returning to "artificial bubbles" as a means of supporting growth. When New York Times reporters asked the president about his thinking on the Fed choice, he said: "I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation. And if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles."
Yellen has been at the forefront of the Fed's thinking on how to use unconventional monetary policy to try to fight unemployment and was an architect of its strategy of using more open communications combined with bond purchases to try to spur growth. She says all the right things about potential bubble risks from the Fed's easy money policies ("a significant concern that I and my colleagues take very seriously," as she put in a March speech). But she is not particularly vocal on what those risks are and where they might be bubbling up.
Essentially, the reservations among Obama advisers over Yellen have more to do with what sort of Fed chair they want -- what leadership style and intellectual emphasis -- than any particular weaknesses that the current vice chairman may have.