What transpired next is more reminiscent of a heated political race or popularity contest than the technocratic appointment it is.
Friends and foes of the two candidates rushed to op-ed pages and the blogosphere to express their opinions. The editorial pages of several mainstream newspapers felt compelled to endorse one of the candidates. Some Web sites ran popularity polls. And, in a gathering with congressional lawmakers, President Obama was forced to confront the issue.
In many of the cases, the arguments were made by friends and admirers who sought to boost a candidate they believed to be highly qualified. Increasingly, however, they have become more negative attacks connected, in Summers’s case, to lasting anger over his deregulatory stance and controversial statements he has made about women or, in Yellen’s, to concerns that she is too close to Bernanke and wouldn’t think independently.
As a result, this particular Fed debate now risks hurting the nation’s economic posture.
Led by the Fed, central banks around the world pursue their critical policy objectives using a range of instruments — most notably, interest-rate setting, balance-sheet operations, regulation, communication and policy guidance. To succeed in a durable fashion, they need to be able to persuade the private sector (and financial markets in particular) to behave in supportive ways and to refrain from taking certain actions. Indeed, the most successful central banks are those that entice the private sector to do most of the heavy lifting for them.
It therefore is not surprising that research has shown that the effectiveness of central banks is linked in an important fashion to credibility, including the capacity of leaders to combine constructive internal collaboration with a solid external standing. A successful central banker must do more than just convey the current policy stance. She or he must also command the necessary respect among politicians, financial markets and foreign central bankers that anchors the baseline policy path, underpins a well-disseminated methodology and facilitates the inevitable midcourse corrections.