Chris Joye has this afternoon produced another interesting report in the AFR, featuring an exclusive interview with one of the few people to have worked closely with all of the main candidates to replace Ben Bernanke as chair of the Federal Reserve when his term expires in January: professor Warwick McKibbon.
According to the article, there are three main contenders for the Fed chair following Larry Summers exit earlier today: Janet Yellen; Donald Kohn; and Timothy Geithner.
On their chances of gaining the chair, McKibbin believes: “Geithner has no chance with the Senate hearings… Don was far enough in the Fed’s background that he may be okay. I think Janet could have problems getting through because of the right wing”.
According to the article, Janet Yellen is expected to be by far the most stimulatory of the three remaining candidates, which partly explains the market’s positive reaction to the news that Summers (a known hawk) had withdrawn his nomination:
McKibbon noted that Yellen was “definitely a dove” when it comes to inflation and said she advocates “nominal incoming targeting”, which central banks are now focussing on to reduce government debt to GDP ratios. UBS strategist, Andrew Lilley concurred, arguing that “Yellen is even more dovish than Bernanke”. “She’s been the most supportive person on the Fed’s board in favour of balance sheet expansion, and sees low risks to financial stability by continuing quantitative easing”…
McKibbon also believes that Kohn is the best choice, owing to his “superior experience working inside the Fed, the likelihood of a smoother confirmation process, and his expertise in dealing with “financial vulnerabilities”, which McKibbin believes is a serious looming issue”.
