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Wednesday, July 24, 2013

Comments on Janet Yellen; Thursday: Durable Goods, Initial Unemployment Claims

by Calculated Risk on 7/24/2013 09:36:00 PM

All aboard the Janet Yellen express! There were several articles about Yellen (and Larry Summers) over the last couple of days, but what really stands out is Yellen's depth of knowledge on monetary policy and Federal Reserve regulatory issues. She has strong leadership skills, and is admired by just about everyone. She clearly follows the data, and was well ahead of most other FOMC members (and other candidates) on understanding the housing bust and possible consequences.

A few articles, from Cardiff Garcia at the Financial Times: Why Yellen should be the next Fed chair, from Professor Richard Green writing at Forbes: Janet Yellen Would Be A Better Pick For Fed Chair Than Larry Summers, Tim Duy Fed Watch: Shock and Awe(ful), Mike Konczal at Next New Deal: Yellen, Summers and Rebuilding After the Fire,  Felix Salmon at Reuters: Don’t send Summers to the Fed and Jon Hilsenrath at the WSJ: Fed Chief Choice Shapes Up as Race Between Summers, Yellen

And from former FDIC Chairwoman Sheila Bair writing at Fortune: Why Janet Yellen should succeed Ben Bernanke

[T]here is no better qualified candidate to fill Bernanke's shoes when he steps down in January. A noted economist, Yellen headed the Council of Economic Advisors for two years; led the San Francisco Federal Reserve Bank for six years; and has served ably as Bernanke's Vice Chairman since 2010. Unlike Larry Summers ... she was not part of the deregulatory cabal that got us into the 2008 financial crisis. In fact, she had a solid record as a bank regulator at the San Francisco Fed and was one of the few in the Fed system to sound the alarm on the risks of subprime mortgages in 2007.
If you read all those pieces - and ignore the criticism of Larry Summers - you'll understand why Janet Yellen is such an outstanding choice for Fed Chair. She has all the skills, leadership ability, communications skills (she won teaching accolades as a professor), and she pays attention to developing trends (data guys really respect Yellen).

None of the other candidates was paying attention in 2005 and 2006 like Yellen, as an example here is her '"ghost towns" of the West' comment in 2006:
According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. For example, a major home builder has told me that the share of unsold homes has topped 80 percent in some of the new subdivisions around Phoenix and Las Vegas, which he labeled the new "ghost towns" of the West.
And Menzie Chinn points out a speech she gave in 2007 and writes:
Having coauthored an entire book on the financial crisis of 2008 (Lost Decades, with Jeffry Frieden) I think that one of the most important qualities for a policymaker is the ability to look forward, and assess potential dangers and understand why those dangers arise. ... Keeping in mind how carefully one must tread as a public official (as opposed to someone pontificating on a blog), [Yellen's] comments [in 2007] strike me as quite prescient, and with the benefit of hindsight, correct in diagnosis.
Yellen was correct, but she has no crystal ball - she just paid close attention to the data and drew the correct conclusions. Other candidates can only point to general warnings during that period.

The bottom line is on monetary policy experience, regulatory experience, leadership and communications skills, and the ability to analyze the data - and draw the correct conclusions - Yellen stands head and shoulders above all the other candidates.   She is the right person at the right time.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for an increase to 341 thousand from 334 thousand last week.

• Also at 8:30 AM, the Durable Goods Orders for June from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

• At 11:00 AM, the Kansas City Fed Survey of Manufacturing Activity for July. The consensus is for a reading of 0 for this survey, up from minus 5 in June (Above zero is expansion).