No Direction But Down For The Next Fed Leader

Thank God for procrastination! The Obama administration indicates it will wait until fall to name a new Fed chair. Not a minute too soon we get a reprieve from the gusher of opinion on who the prospective choice. Personally I was becoming totally conflicted. Is Larry Summers truly a jerk, albeit a very smart one? Did Janet Yellen really see the financial crisis coming earlier than most? Am I a sexist is I prefer Summers? Are these seriously the only two qualified individuals for the job in this huge country, or do they just have the best PR staffs?

I wonder if Summers, Yellen or any dark horses have truly thought out the implications of getting this job now. There’s a better than even chance that they end up being labeled a failed chairman. Think about it. Since 1970 we’ve had four chairmen: Arthur Burns, Paul Volcker, Alan Greenspan and Ben Bernanke. Burns and Greenspan saw their terms culminate in economic disaster and naturally became poster children for incompetent monetary management. Volcker and Bernanke walked into the smoldering wreck, the world didn’t end and in fact got better. Whether their actions influenced much more than the margin is debatable but they both are lionized.

Whoever comes next has the deck stacked against her. Unless completely out of her mind or given to irresponsible risk taking she is not going to change the current course of the Fed. Whether it succeeds or fails is immaterial to her reputation because it’s Bernanke’s baby. At some point, however, the recovery stops being his and becomes hers and that’s where the downside pops up. She’s on board for 8 years and a lot can happen in that period of time including a recession of some severity. In fact, a recession of some severity is probably a given if you believe in the business cycle and history. She has no reputational upside to further recovery and is going to get at least dinged for any downturn. If things do crater you have your next Burns/Greenspan.

I assume we’ll have the same dreary argument in the fall when the decision can’t be put off any longer. It might even be more tedious as the front runners’ camps jockey until then to get opinion on their side. But maybe one of them will wake up and decide that they won’t be a much bigger footnote to history if they get the job and they might well end up being the wrong sort of footnote.




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