September 18, 2013
ALWAYS APPOINT THE MOST HAWKISH, SO HE CAN BE ALL THE MORE DOVISH:
Sorry, Wall Street. Janet Yellen is no dove (Cyrus Sanati, 9/17/13, FORTUNE)
The equity markets and liberal Democrats may rue the day they ever cheered for a Yellen-led Federal Reserve. Both the S&P 500 and the Nasdaq soared close to new highs Monday on the news that Larry Summers had withdrawn his name for consideration to be the next chairman of the Federal Reserve, leaving Janet Yellen as the only viable candidate for the position. Apparently, Yellen is seen by the markets as being more "accommodative" than Summers when it comes to printing money to drive growth, which Wall Street has interpreted as being good for the stock market.But the notion that Yellen is some sort of easy money "dove" and that Summers is a tight-fisted "hawk" has no basis in reality. Unfortunately, this simplistic contrasting construct, which has been accepted lock, stock, and barrel by both the markets and the media, has managed to irreparably damage the search for the next Fed chairman and has effectively handed the keys to the vault over to Yellen. But now that she is the front-runner and Summers is out of the way, it would be wise for investors to take a much closer look at Yellen's record. Contrary to what has been largely said and written, this sweet dove may prove to have very sharp talons.
The UR should take advantage of the mistaken perception and appoint the perceived hawk. Any new Fed chairman's first step has to be to prove his anti-inflation bona fides. Even Republican appointees--who generally don't have as much dovish stigma, being perceived as tools of the bankers--have to bump rates, which is how both Alan Greenspan and Ben Bernanke helped trigger economic crises, since they were doing so into the teeth of deflation.
By playing up Mr. Summers's supposed hawkishness in hearings, where Democrats would have been his attackers, the administration might have avoided the need for the harmful rate increases Ms Yellen will institute.Posted by Orrin Judd at September 18, 2013 4:16 AM