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Yellen vs. Summers: Who will lead the Fed after Bernanke?—Erica Alini

Plus, two other guys

After some seven years of crisis management at the Federal Reserve, Chairman Ben Bernanke is rumoured to have had enough. His second four-year term is up at the end of January of next year—likely right in the middle of the central bank’s effort to rein in its quantitative easing program, a task the current chief has compared to landing on an aircraft carrier.

Who’ll be the lucky pilot who takes over the cockpit? If you listen to public chatter, it’s going to be a toss-up between Fed Vice Chair Janet Yellen, the long-time favourite among economists, and former U.S. Treasury Secretary Lawrence Summers, whom the Washington Post‘s Ezra Klein says is at the top of Barack Obama’s short-list.

Here’s a quick intro to the two front-runners and,—since neither is an inevitable choice—another couple of guys who make for more improbable but interesting picks. (Another prominent name tossed around is that of former Treasury Secretary Tim Geithner, but he has said he isn’t interested).

Janet Yellen, vice chair of the Board of Governors. (AP Photo/Getty /Eugene Hoshiko)

Janet Yellen, vice chair of the Board of Governors. (AP Photo/Getty /Eugene Hoshiko)

JANET YELLEN: In a financial crisis and recession that have defied so much conventional wisdom in economics, Janet Yellen consistently got it right. With extraordinary prescience, she warned about the excesses in the housing market in 2007 — something she described as a “600-pound gorilla” in the corner of the Fed’s meeting room. At the onset of the crisis, she quickly recognized the need for bold action and urged aggressive interest rate cutting, advice Bernanke eventually heeded. She has also advocated for more transparency at the Fed. The now regular press conferences after the bank’s rate-setting meetings are said to have been partly her idea. She also led efforts to shape the Fed’s forward guidance on short-term rates.

Yellen is firmly in the dovish camp, meaning she’s likely to be more concerned about unemployment than inflation. She believes the current high unemployment levels are an effect of the recession, rather than of structural shifts in the economy, and that the Fed must fight joblessness before dislocated workers become permanently detached from the labour force. She has long argued that an extraordinary amount of monetary stimulus would not lead to runaway inflation because economic activity was so depressed. So far, she’s been right.

She has 13-some years of Fed experience under her belt, including, notably, as president of the San Francisco Fed. She was also President Bill Clinton’s chair of the Council of Economic Advisers and taught economics at the University of California at Berkeley.

Known for being a clear communicator and a consensus builder, she might be soft-spoken but she is no softy. At a time when Fed Chair Alan Greenspan was being held as the leader of a “committee to save the world“—as the famous Time magazine cover read—she advised him to raise interest rates and keep an eye on the booming stock market. He did not listen.

Though her Democratic credentials are unquestioned, Yellen is deemed to be an acceptable candidate for Senate Republicans who will have to vet the next chair. Still, she isn’t an Obama Administration insider. Another weak point is her lack of experience in the private sector.

Winning odds: 65% according to economists surveyed by Bloomberg. Online gamblers on Irish gaming site Paddy Power give her one to four.

Trivia: Her husband George Akerlof is an Economics Nobel Laureate.

LARRY SUMMERS. As former director of Obama’s National Economic

(Creative Commons/World Economic Forum)

(Creative Commons/World Economic Forum)

Council, Larry Summers is a White House insider, and, according to a Wall Street Journal source, “hellbent” on getting the job. Still, the president might be wary of passing on the chance to nominate the first female Fed chair—and Summers, in particular, has a bit of a reputation as a member of the old boys club. A brazen personality who always speaks his mind, he has often rubbed the gentler sex the wrong way. A female colleague once described him as “incredibly aggressively competitive, in a kind of…high-school debate champion kind of way.” As Harvard university president, he made headlines for remarking that women might have an aptitudinal problem with math, one of a few controversies that led to his early resignation. Skeptics worry he might prove divisive on the Fed’s rate-setting committee, a body that usually operates by consensus.

Detractors also point to Summers’ support for financial deregulation in the 1990s. Along with Greenspan and former Treasury Secretary Robert Rubin, he was the third fellow celebrated in that fateful “committee to the save the world” magazine cover. As a Bloomberg article remarked in 2012: “Today, their successors are still picking up the pieces.”

Within the first-term Obama administration, Summers was known for more moderate, centrist views, and has plenty of Wall Street credibility, which might appeal to Republicans. He was also, however, one of the brains behind Obama’s stimulus plan, which got mixed reviews from economists and might attract more partisan rancor than Yellen’s San Francisco and Berkeley connections.

Before the Washington Post scoop, analysts had widely written him off as a long shot.

Winning odds: 9% according to the Bloomberg survey. Eleven to two according to Paddy Power.

Trivia: He is a former professor, boss and mentor of current Facebook COO Sheryl Sandberg. Evidently, not all all smart women find him insufferable.

(Creative Commons/World Economic Forum)

(Creative Commons/World Economic Forum)

ROGER FERGUSON: He was Fed vice chair from 1999 to 2006, under Alan Greenspan, and, if nominated, would be the first black man to lead the bank. He’s currently the president and CEO of TIAA-CREF, one of the largest fund managers in the U.S. Like Summers’, his track record did not survive the Great Recession untarnished. Ferguson oversaw financial regulation at the Fed and was, for a period, chairman of the Financial Stability Forum, the predecessor of the Financial Stability Board now headed by Mark Carney. Yet, he failed to see the imbalances building up in the financial industry.

Winning odds: 7% according to Bloomberg. Five to one on Paddy Power.

Trivia: He was the only Fed governor in Washington on 9/11. Greenspan later described him as “the major policymaker” during that crisis.

(Creative Commons/World Economic Forum)

(Creative Commons/World Economic Forum)

STANLEY FISCHER: Israel’s central banker from 2005 until January of this year, he is widely credited for keeping the country’s economy out of trouble during the financial crisis. He was an early advocate of unconventional monetary policies and of macroprudential measures to keep asset bubbles in check. He also moved to cool down soaring housing prices, a move that made the bank unpopular for a while. Still, Israeli newspaper Haaretz called Fischer the country’s “superhero” saying the central banker’s surprise resignation earlier this year left the country shaken by a collective “Separation Anxiety Disorder.” A dual citizen, Fischer has let it be known he’s not ready to retire.

Winning odds: 4% according to Bloomberg. 40 to one on Paddy Powers.

Trivia: At MIT, he was a graduate adviser of Bernanke and European Central Bank President Mario Draghi.

Erica Alini is a California-based reporter and a regular contributor to, where she covers the U.S. economy.