Tag Archives: yellen

The big winner from FOMC’s decision on interest rates? Daniel Scioli

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Beleaguered emerging markets across the globe breathed a sigh of relief Thursday afternoon when the chair of the US Federal Reserve, Janet Yellen, explained that the Federal Open Markets Committee would not (yet) be raising the federal funds rate, expressly due, in part, to weak economic conditions in emerging economies where tighter US monetary policy could exacerbate macroeconomic conditions.USflagargentina

When it comes to world politics, the FOMC’s decision could give the strongest boost to the ruling party’s presidential candidate in Argentina, who currently leads polls ahead of the October 25 general election.

Many economists argue that seven years of interest rates at the zero lower bound have created a bubble in emerging economy assets. Investors looked to developing economies with potentially higher rates of return outside the developed world while the Federal Reserve was flooding the global economy with liquidity, not just by lowering interest rates to zero, but through several rounds of quantitative easing.

It’s already been a tough couple of years as investors have pulled back from developing economies, beginning with the Fed’s decision to begin tapering off from the peak of its QE bond-buying program. But the slowing Chinese economy and depressed prices for oil and other commodities (not, perhaps, entirely unrelated) have made life particularly difficult for emerging economies.

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RELATED: Scioli leads in Argentine race after primaries 

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By keeping interest rates at zero, the Federal Reserve will lessen pressure on those economies. Continue reading The big winner from FOMC’s decision on interest rates? Daniel Scioli

Putin tops world power rankings

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It’s far from scientific, but less than 24 hours after Republicans appeared to defeat US president Barack Obama in midterm congressional and gubernatorial elections, Russian president Vladimir Putin defeated him to the top spot on Forbes‘s 72 Most Powerful People in the World.USflagRussia Flag Icon

The rankings don’t really mean that much in the grand scheme of things, of course.

The Forbes rationale?

We took some heat last year when we named the Russian President as the most powerful man in the world, but after a year when Putin annexed Crimea, staged a proxy war in the Ukraine and inked a deal to build a more than $70 billion gas pipeline with China (the planet’s largest construction project) our choice simply seems prescient. Russia looks more and more like an energy-rich, nuclear-tipped rogue state with an undisputed, unpredictable and unaccountable head unconstrained by world opinion in pursuit of its goals.

Hard to argue with that, I guess.

But the rankings represent a nice snapshot of what the US (and even international) media mainstream believe to be the hierarchy of global power. Though I’m not sure why Mitch McConnell, soon to become the U.S. senate majority leader, isn’t on the list.

So who else placed in the sphere of world politics this year?

  • Obama ranked at No. 2 (From the Forbes mystics: ‘One word sums up his second place finish: caution. He has the power but has been too cautious to fully exercise it.’).
  • Chinese president Xi Jinping, who took office in late 2012 and early 2013, ranked at No. 3. (Tough break for the leader of the world’s most populous country!)
  • Pope Francis, ranked at No. 4, even though Argentina lost this year’s World Cup finals to Germany.
  • Angela Merkel, ranked at No. 5, third-term chancellor of Germany and the queen of the European Union.
  • Janet Yellen, ranked at No. 6, the chair of the US Federal Reserve.
  • Mario Draghi, ranked at No. 8, the president of the European Central Bank.
  • David Cameron, ranked (appropriately enough) at No. 10, the Conservative prime minister of the United Kingdom, who faces a tough reelection battle in May 2015.
  • Abdullah bin Abdul Aziz Al Saud, No. 11, the king of Saudi Arabia.
  • Narendra Modi, No. 15, India’s wildly popular new prime minister.
  • François Hollande, No. 17, France’s wildly unpopular president.
  • Ali Khamenei, No. 19, Iran’s supreme leader, especially as Iranian nuclear talks come to a crucial deadline this month.

Continue reading Putin tops world power rankings

Why Stanley Fischer is such an inspired choice as US Fed vice chair

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It’s really quite incredible that there’s been more ink spilled over the decision of the American Studies Association, a US-based academic group, to boycott Israel than the potential nomination of Stanley Fischer, the former governor of the Bank of Israel, to become the next vice chair of the US Federal Reserve.ISrel Flag IconUSflag

It’s somewhat ironic that at a time when many critics are attacking the ASA’s decision (is it morally right to boycott the exchange of ideas, academic debate and discussion?), Fischer’s transition from Israeli central banker to US central banker would be a spectacular opportunity — for Fischer, for the Fed, for Israel, for the United States and, if the initial reaction holds, world markets, too.  Reuters reported late last week that Fischer was offered the spot, though there’s not been an official announcement.

Janet Yellen, the current Fed vice chair, is US president Barack Obama’s nominee to chair the Fed after Ben Bernanke completes his second term on January 31, 2014, and she is expected to be confirmed as the new Fed chair by the US Senate in a vote later this week.

Fischer, as the number-two official at the Fed, would bring with him eight years of experience setting monetary policy for Israel and the rock-star status of one of the world’s most accomplished economists.  As a longtime professor at the Massachusetts Institute of Technology, he not only served as thesis supervisor to Bernanke, the current Fed chair, but also Mario Draghi, the chair of the European Central Bank.

As The Financial Times reported last week, Fischer has a ‘dream resumé’ for the position, topped off by an eight-year stint as Israel’s central bank governor that is universally acclaimed:

Some clues to how Mr Fischer thinks about monetary policy come from his tenure as governor of the Bank of Israel. He was one of the country’s most respected public figures; when he announced he would be stepping down earlier this year, one commentator said the country was losing its last ”responsible adult”.

His eight years as governor coincided with fast economic growth, low unemployment – currently 6 per cent – and low inflation. Israel survived the financial crisis in 2008-9 without seeing a single bank collapse.  Unlike his predecessor Jacob Frenkel, who had a tight focus on fighting inflation, Mr Fischer is credited with broadening the Bank of Israel’s remit to influence growth and employment. His decisions were marked by pragmatism: he slashed interest rates in the wake of the financial crisis, then abandoned economic dogma to try to hold down Israel’s currency, before raising rates as the economy recovered.

Fischer was so successful in stabilizing Israel’s economy that the Bank of Israel was already raising interest rates by September 2009 — if it hadn’t been for his age (he’s 70 today), he would have been a strong candidate to succeed Dominique Strauss-Kahn as managing director of the International Monetary Fund in 2011.

Born in what is today Zambia, Fischer spent his childhood there and in what is today Zimbabwe (and what was then the colonial apartheid state of southern Rhodesia).  Fischer first came to the United States in 1966 for his Ph.D in economics at MIT, and he remained there as a professor through 1988, when he took a position as the World Bank’s chief economist for two years.  From 1994 to 2001, he served as the first deputy managing director of the IMF during the Asian currency crisis of the late 1990s and other financial crises from Mexico to Argentina to Russia.  After a brief stint in the private sector with Citigroup, he was appointed governor of the Bank of Israel in 2005 by then-prime minister Ariel Sharon — and recommended by the finance minister at the time, Benjamin Netanyahu.  He holds dual Israeli and US citizenship, and he would have been as credible a candidate to lead the Fed as either Yellen or former treasury secretary Lawrence Summers.

As Dylan Matthews wrote earlier this year for The Washington Post, Netanyahu and Sharon took a big chance on Fischer, who wasn’t an Israeli citizen at the time of his nomination:

No matter — Fischer’s results were more than enough to assuage any doubts. No Western country weathered the 2008-09 financial crisis better. For only one quarter — the second of 2009 — did the Israeli economy shrink, by a puny annual rate of 0.2 percent. That same period, the U.S. economy shrank by an annual rate of 4.6 percent. Many countries, including Britain and Germany, fared even worse.

So what would his appointment mean for the Fed?  Continue reading Why Stanley Fischer is such an inspired choice as US Fed vice chair

Yellen is the ‘tan socks’ candidate for Fed chair — and that’s why Obama should pick her

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Financial reporter David Wessel provides a hilarious anecdote about Ben Bernanke, currently the chair of the Federal Reserve, from his days on the Bush administration’s economic team in his 2009 book, In FED We Trust: Ben Bernanke’s War on the Great Panic, that captures in capsule form one of the reasons why Bernanke has made such a great Fed chair: USflag

One day, Bernanke showed up for a monthly Oval Office meeting wearing a dark blue suit and light tan socks.

Bush notices. ‘Ben,’ the president said, according to one participant, ‘where did you get those socks?’

‘Gap,’ replied Bernanke. ‘Three pair for seven dollars.’

The president wouldn’t let it go, mentioning Bernanke’s light tan socks repeatedly during the forty-five-minute meeting.

At the next month’s meeting, Bernanke had convinced nearly the entire staff, as well as U.S. vice president Dick Cheney, to wear tan socks, getting the last laugh on Bush.  Beyond the innocent prank, the implication is clear enough — Bernanke, always a bit of an outsider in Washington, was wearing tan socks in a city of black socks.  That’s perhaps appropriate for a Jewish economist who grew up in South Carolina.

That distance has been one of the understated keys to Bernanke’s success as Fed chair since 2006 — he’s a rare Fed chair who has enough distance from official Washington to be a credibly independent central banker but also sufficient experience to navigate Washington’s politics.  Despite his eight-month stint as chair of the Bush administration’s Council of Economic Advisers, Bernanke had also chaired Princeton University’s economics department for six years and served as a member of the Fed’s seven-person Board of Governors from 2002 to 2005.  He’s not the kind of Washington fixture that Alan Greenspan had increasingly become in his 19 years as Fed chair, nor is Bernanke’s wife a consummate political insider like NBC correspondent Andrea Mitchell, Greenspan’s wife.

As Felix Salmon writes today at Reuters, the Fed chair is one of the two most important officers in the United States.  Bernanke’s successor, who will take office in February 2014, will be even more important to world politics, in at least an indirect capacity for his role in global markets, than U.S. secretary of state John Kerry, U.S. treasury secretary Jacob Lew or U.S. defense secretary Chuck Hagel.

Right now, there are two frontrunners:

  • Lawrence Summers, treasury secretary in the Clinton administration from 1999 to 2001, Harvard University president from 2001 to 2006 and the hard-charging director of the Obama administration’s National Economic Council from 2009 to 2010; and
  • Janet Yellen, vice chair of the Federal Reserve since 2010, president of the Federal Reserve Bank of San Francisco from 2004 to 2010, and the chair of the Clinton administration’s Council of Economic Advisers from 1997 to 1999.

The conventional wisdom is that Summers has an edge, because Obama knows him so well, and trusts him, on the basis of his role earlier in the administration.  So Obama therefore prefers to appoint Summers, as do all of the top economic policymakers close to Obama, such as Lew, former treasury secretary Timothy Geithner and current NEC director Gene Sperling.

The conventional wisdom is also that while Summers is a exceedingly brilliant and talented economist, he is not someone who values collaboration, a key trait for someone whose goal is to lead the 12-member Federal Open Market Committee that is comprised of the seven members of the Board of Governors and a rotating slate of five of the 12 regional Federal Bank presidents.  The substantive knocks on Summers are even greater.  He supported deregulation within the financial industry during the Clinton administration that allowed for the proliferation of new financial derivatives markets, and he opposed the ‘Volcker Rule’ in the 2010 Dodd-Frank package of financial reforms that restricts banks from using deposits in riskier trading.  That’s not counting his controversial turn at Harvard, when he was forced to resign over comments suggesting that men have a greater natural aptitude for the sciences nor does it take into account the conflicts of his post-government employment with private-sector Wall Street firms like Citigroup and hedge fund D.E. Shaw or his lack of actual experience within the Federal Reserve system.

Tyler Cowen at Marginal Revolution argues that Summers is preferable to Yellen because Summers has more ‘right-wing street cred,’ and therefore might work more easily with the current Republican-controlled U.S. House of Representatives and a potential future Republican presidential administration, both because he’s taken more criticism from the left than Yellen and because of Yellen’s background at Berkeley.

But Salmon argues that Yellen would be a better chair on the day-to-day matters that are crucial to stabilizing the U.S. and global economy (noting that any Fed chair would respond to a financial crisis guns-a-blazin’).  Ezra Klein, at The Washington Post‘s Wonkblog, argues that we don’t know which candidate would be stronger on financial regulation, another key Fed role.  Paul Krugman argues that Yellen’s detractors are motivated by rampant sexism:

Sorry, but it’s hard to escape the conclusion that gravitas, in this context, mainly means possessing a Y chromosome.

In the grand scheme of things, both Yellen and Summers are likely to pursue similar policies.  Even though Yellen has been labeled an inflation ‘dove,’ there’s no indication that either Yellen or Summers will abandon Bernanke’s January 2012 decision to set an explicit 2% inflation rate target for the first time in Fed history.  But the next Fed chair will most certainly wind down the Fed’s extraordinary ‘quantitative easing’ actions of the past five years whereby the Fed has purchased assets, bonds and other securities at an unprecedented rate, thereby boosting liquidity in the global financial system.

The reason to appoint Yellen is not because she is a woman, because she’s an inflationary ‘dove,’ because we think she might be a stronger advocate of financial regulation or even because she has more experience within the Fed.  It’s because she will be seen to have more independence  at a time when central bank independence will be crucial to the Fed’s success — that makes Yellen the ‘tan socks’ candidate for Fed chair, and it’s the key reason why Yellen’s nomination should be a slam-dunk case for Obama. Continue reading Yellen is the ‘tan socks’ candidate for Fed chair — and that’s why Obama should pick her