Investing.com - Financial Markets Worldwide

Yellen vs Summers: Bird Fight‏

ByDanske Markets
Published 08/22/2013, 09:13 AM
Updated 05/14/2017, 06:45 AM

Fed chairman Ben Bernanke's second four-year term expires on January 31, 2013 and his successor needs to be vetted by Congress before then. Although a dark horse cannot be ruled out, there are two clear candidates: Lawrence Summers and Janet Yellen. The debate of who is the most suited successor to Big Ben has been surprisingly little about the candidate's economic views and the level of innuendo has been a US presidential campaign worthy.

We believe that the characterisation by the media of Lawrence Summers as being more hawkish than Janet Yellen is too simplistic. In fact we argue that Summers and Yellen are equally dovish when economic conditions improve, since they both have a very strong aversion to unemployment relative to inflation. It is first when the US is hit by a negative demand shock while interest rates are at the zero lower bound that Summers is likely to be more hawkish than Yellen.

We point out the importance of a transparent Fed and we believe that Yellen would support this transparency. On the other hand, Summers's flamboyant personality together with his comments that he will be a fire-fighting Fed chairman indicate that the Fed would become less transparent if he was to be chosen by Obama.

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