The Case For Janet Yellen In One Sentence
The White House later denied the report, but the implication of the market's reaction is clear: Larry Summers is viewed as the "hawkish" alternative to Janet Yellen, and as such, that should mean dollar strength and gold weakness.
But this hawkish vs. dovish dichotomy is not really that useful. At least in the current context, neither is expected to have a meaningful impact on the future of QE (the winddown process of which is likely to begin before either took the top job) and both would likely extend zero interest rates for a long time.
So what makes Yellen the superior choice?
In a post in July, Cardiff Garcia made the case for Janet Yellen, and included one sentence which has really stayed with us:
Not that Yellen can predict the twists and turns of the economy with perfect clarity - nobody can - but rather she has consistently shown a deep early understanding of the underlying pressures building in the economy and the scale of their potential consequences.
In the late 90s, Janet Yellen was worried about the economy overheating.
In the mid-2000s, Yellen was worried about the housing bubble, and the impact of a bust.
Post-crisis, Yellen has recognized that inflation is the least of our problems, and that everything the Fed does should be oriented towards addressing the unemployment problem.
This shows a flexibility of thought and an ability to recognize what the key issues of the moment are that would make her a prime Fed chair.
Yes, Yellen seems to believe a bit more in the power of monetary policy to address the current malaise more than Summers does, so that's one reason to call her dovish. But Yellen's excellent understanding of "underlying pressures building in the economy" is what makes her stand out.