When Federal Reserve Vice Chair Janet Yellen spoke at the Society of American Business Editors & Writers conference this spring in Washington, D.C., she made one thing perfectly clear — the nation’s central bank has dramatically overhauled its approach to communication.
She said the Fed has evolved from the days when hints, feints and deliberate obfuscations were the norm and plain speech was the exception. She also made it clear that the Fed will no longer force the public to wait weeks or months for explanations but will provide details in an expedited fashion.
As the former head of the Federal Reserve Bank of San Francisco, Yellen is a somewhat familiar figure to the Business Times. Less so is Larry Summers, the former Treasury Secretary and her chief rival in the contest to succeed outgoing Chairman Ben Bernanke.
There is no doubt that Summers and Yellen both have the credentials to be a Fed chair and that President Obama faces a tough choice.
But we think that the scales tilt in favor of Yellen because of the view she articulated in front of 250 top financial journalists last spring. This is simply not the Federal Reserve of the Rubin-Greenspan-Summers era, when former Treasury Secretary Bob Rubin, former Fed Chair Alan Greenspan and then-Deputy Treasury Secretary Summers were endowed with near magical powers.
The trio parachuted into financial crises at Long Term Capital Management and in Southeast Asia, met behind closed doors with principals and crafted solutions that were never explained but appeared to be of the “my way or the highway” variety.
Suffice it to say that among most members of the financial media, the communication and consensus building skills of Summers have never been at the top of his list of attributes.
Sometimes haltingly, the Federal Reserve has been on a path to improved communication for the better part of three decades. Part of that was the recognition that major Fed shifts, such as former Chair Paul Volker’s dramatic move toward monetary policy of the early 1980s, were largely missed by Main Street investors who could not navigate their way through Fedspeak with the facility of the Wall Street crowd.
There is always the danger that a Fed committed to communication can send a message that’s mixed, as the “walking back” of some of Bernanke’s remarks about reduce bond buying demonstrates. But if President Obama wants a Federal Reserve that remains on track toward better communication and transparency, he should pick Yellen.