On Sunday, former Treasury Secretary Larry Summers withdrew his name from consideration to be the next Federal Reserve chairman. Current Chairman Ben Bernanke steps down in January 2014, and Summers was widely thought of as President Obama's top pick to replace him.
In a letter to Obama, Summers said he has "reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration or, ultimately, the interests of the nation's ongoing economic recovery." Obama reluctantly agreed.
The acrimony in the Summers confirmation fight would have come largely from Democrats. Four Democratic members of the Senate banking committee had signaled they were "no" votes, and while three are on the liberal end of the Democratic spectrum — Sens. Elizabeth Warren (Mass.), Sherrod Brown (Ohio), and Jeff Merkley (Ore.) — the opposition of moderate Sen. Jon Tester (Mont.) pointed to a tough, potentially fruitless fight.
"Everyone knew liberals didn't want the former Treasury secretary" to head the Fed, says Tim Mullaney in USA Today. But there was also a surprising "level of skepticism about Summers from his own crowd — Wall Street types and business economists." More than half the economists polled by USA Today favored Federal Reserve Vice Chair Janet Yellen. Yellen is also the favorite of many Democrats.
Fiscally conservative Wall Street likes the "quiet, liberal academic Yellen" because it knows her and because she is seen as more favorably inclined to prolong Bernanke's fiscal stimulus measures, says Mullaney. And when liberal Democrats and "financial market players line up behind the Berkeley professor — and the professor would be the first woman Fed chair to boot — there was no constituency left for a Summers pick."
So Yellen is a shoo-in, right? Not necessarily.
The Washington Post's Neil Irwin reported in August that Obama's team appears slightly uneasy about her. They don't know her very well, she has carved out an unusual role as less Bernanke's deputy and more "her own intellectual force" at the Fed — Obama's advisers "are big on the team player concept," Irwin says — and they are not sure her methodical, "cautious approach would work when she is dealing with the full panoply of issues that a Fed chair must grapple with."
Yellen might also face some opposition from Republicans, says Marc Ambinder at The Week. That's not a deal-breaker, he adds: "Democratic senators will relish and gain momentum from" any "partisan fire" aimed her, and she is a better fit for the "distinctively populist" tone our politics has taken.
Republicans won't stand in the way, predicts James Pethokoukis at the American Enterprise Institute. Is the GOP really going to "filibuster the first female Fed nominee on a technocratic basis?" Not likely, he says, and there are even some things for "center-right" Republicans to like about her. And since "it's unlikely a single Democrat would vote against Yellen or even offer a single substantive criticism," the "smart money" is on a Yellen nomination.
The online betting markets do strongly favor Yellen — though the "odds were wrong before," says Phil Izzo at The Wall Street Journal. When Summers emerged as Obama's probable pick over the summer, the markets gave him an 80 percent chance. Yellen has once more replaced Summers as the odds-on favorite now, Izzo says, but the "final decision rests with the president and his closest advisers, and as the shifting odds earlier this summer attest, markets don't have any inside track on his thinking."
And there's the rub. Obama may have been able to get Summers through, and there's a good chance Yellen would be an easier sell — but he has to nominate her first. Steve M., the liberal behind No More Mister Nice Blog, ruefully concludes that Obama will look elsewhere — possibly to Yellen's predecessor, Donald Kohn — noting that Obama is reportedly annoyed by the public lobbying on Yellen's behalf.
Paul Ashworth, the chief U.S. economist at Capital Economics, takes that a step further: "Nominating Yellen now could make Obama look weak, kowtowing to the Democrats who have been openly campaigning for her."
The idea that Obama will pass Yellen over because he "feels that nominating her would be a dangerous capitulation — it would show they could be pushed around by liberal Democrats" — is exactly "the kind of Washington nuttiness this White House typically prides itself in being above," says Ezra Klein at The Washington Post. "To deny Yellen the post out of spite or fear would be, or at least should be, beneath them."
The White House has never argued that Yellen would be a bad choice, Klein adds. "In fact, they've been at pains to say she's absolutely terrific — an incredible candidate who they'd be thrilled to name if there wasn't, remarkably, an even more incredible candidate in Summers." In case you were wondering where he stands, Klein goes on to list five reasons Obama should tap the "insanely qualified, widely respected" Yellen as Bernanke's replacement.
Obama has had little to say publicly about his choice for one of the nation's most important economic positions. But on Sunday, he told ABC News's George Stephanopoulos that when it comes to Syria's chemical weapons, "I'm less concerned about style points, I'm much more concerned about getting the policy right." If that holds true for economic policy, Yellen fans should maybe take heart. As Obama continues, he could be talking about any number of domestic fights he's lost or won:
I think that folks here in Washington like to grade on style. And so had we rolled out something that was very smooth and disciplined and linear, they would have graded it well, even if it was a disastrous policy. We know that, because that's exactly how they graded the Iraq War. [ABC News]