Hilsenrath Latest: Toss Up Between Summers And Yellen

While hardly a surprise, following recent speculative punditry (which failed miserably in forecasting Mark Carney as the next BOE head, something Zero Hedge predicted half a year ahead of the event due to one simple variable - he is from Goldman) and numerous trial balloons on Bernanke's successor coming hot and heavy from every direction, it was time for the Fed's own mouthpiece, Jon Hilsenrath, to speak, and bring back much needed drama and confusion.

To wit: "The race to become the next leader of the Federal Reserve looks increasingly like a contest between two economists: Lawrence Summers and Janet Yellen. Mr. Summers is an Obama administration insider who was at President Barack Obama's side during the 2009 financial crisis and maintains close contacts with the president and his top economic advisers. Because Mr. Summers is well-known in the White House, Mr. Obama might have a higher comfort level choosing him. Ms. Yellen, a Fed insider, has worked closely with the current Fed chairman, Ben Bernanke, formulating easy-money policies during the past three years and was a player in the Fed monetary-policy decisions during the worst of the financial crisis."

On the surface this is Summers-negative, as his candidacy was panned a week ago, than soared following some new trial balloons proclaiming him favorite earlier this week, and now he is back on equal footing. That said, our personal favorite Fed replacement candidate was and is NY Fed head Bill Dudley for the same simple reason which made us pick Mark Carney for the BOE over a year ago: he is the only person of direct Goldman lineage: a true blood if you will. The others are merely muggles.

More from Hilsy:

For months, outsiders have seen Ms. Yellen, 66 years old, as the favorite to succeed Mr. Bernanke when his term ends in January. But in the past couple of weeks it has become clear that in Mr. Obama's White House, Mr. Summers, 58, is seen as a serious rival, based on comments from current and former administration officials.


Both are baby boomer, Ph.D. economists—Mr. Summers's degree is from the Massachusetts Institute of Technology; Ms. Yellen's from Yale University—with liberal political leanings. Both worked in the Clinton administration, when the economy was booming and the U.S. was ascendant. Both are known for strong views that they aren't shy about advocating. And both would likely place a heavy weight on reducing still-high unemployment in an environment of low inflation.


Mr. Summers has what could be a big advantage of knowing Mr. Obama and his top advisers, some of whom are Summers fans. Since leaving the Obama administration in late 2010, he has visited the White House on at least 13 days, according to visitor records, including four visits with Mr. Obama, most recently in December.


Ms. Yellen, who taught at the University of California at Berkeley, has spent much of her career inside the Fed. She was a member of the Fed board in Washington in the 1990s during the years when Alan Greenspan was chairman; president of the Federal Reserve Bank of San Francisco in the 2000s; and, since 2010, has been Mr. Bernanke's No. 2 in Washington. She met her husband, George Akerlof, a Nobel Prize-winning economist, when the two were working at the Fed in the 1970s.


Ms. Yellen is schooled in the Fed's unconventional policies that have been adopted in the wake of the financial crisis and recession. She is also familiar with the peculiar inner workings of the central bank, where decisions are made by a group of 12 regional Fed bank presidents and seven Washington-based board governors, but driven by a powerful chairman and Fed staff. Fed officials spend a lot of time thinking about reaching consensus on tough decisions. Division and discord in a central bank can unsettle financial markets.


That's especially true now, as the Fed considers how to manage an exit from its extraordinary monetary policies. The hint of a pullback from a $85 billion-a-month bond-buying program has pushed up long-term interest rates by nearly a percentage point and sent stocks seesawing in recent weeks.


If Mr. Obama wants an official who can manage the complex institution and a committee of strong-willed individuals through what could be a destabilizing transition, he could turn to Ms. Yellen.


Ms. Yellen is a strong proponent the Fed's easy-money policies, which makes some in Washington and in financial markets question her resolve as an inflation fighter when the time comes for that.


In other areas where one candidate looks weak, the other looks strong, but appearances can be deceiving.


It's possible that another candidate could make Mr. Obama's short list. Others have been mentioned, including Mr. Obama's former Treasury Secretary, Timothy Geithner. Right now it appears to be turning into a close race between Ms. Yellen and Mr. Summers.

More from the full version can be found here. As for the short version, flip a coin: heads - the one who print more. Tails - the other, who prints more-er.


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