Advisers lean toward Yellen for Fed post over Summers

Advisers lean toward Janet Yellen to replace Ben Bernanke as Fed chief over Larry Summers. Here's why.

As the Federal Reserve winds down the massive bond-buying program that has kept interest rates low for years, its next chairman will have to excel in people skills, making Janet Yellen the best choice, according to investment advisers.

Ms. Yellen, currently the Fed vice chairman, is considered to be leading a two-way race for the post against former Treasury Secretary Lawrence Summers.

Both Ms. Yellen, 66, and Mr. Summers, 58, are deeply qualified for the post, but the two differ in personality. Ms. Yellen comes across as low-key and personable. Mr. Summers has a reputation for being pedantic and caustic.

“He’s always the smartest guy in the room, and he’ll let you know it,” said Ken Waltzer, president of Kenfield Capital Strategies, who knew Mr. Summers when both attended Harvard University. Though Mr. Summers is a leading intellect, “he just doesn’t have people skills,” Mr. Waltzer added.

From 2001-06, Mr. Summers served as Harvard president. His tenure was marred by controversial comments he made at a conference in 2005 about why women are underrepresented in the field of science. He also was abrasive in his dealings with the university’s faculty, according to published reports.

At a San Francisco conference in 2007, Mr. Waltzer got a much different vibe from Ms. Yellen, with whom he caught up after she spoke.

“She seemed like a warm person,” Mr. Waltzer said. “She was willing to speak to someone she didn’t know.”

The next chairman will have to lead the Fed as it makes difficult and potentially volatile decisions on closing down so-called quantitative easing, the monthly $85-billion bond purchase program implemented by current Fed Chairman Ben S. Bernanke following the 2008 financial crisis.

That puts a premium on listening to and working with others, according to advisers.

“We’re at a delicate point in the economy, and we need a consensus-builder,” said Dan Candura, president of PennyTree Advisers LLC. “Right now, we have so much gridlock in Washington, I can’t imagine that Larry Summers would be less polarizing.”

Several advisers anticipated that Ms. Yellen would be a team player, bringing other Fed governors on board for key decisions, while Mr. Summers would dictate policy changes.

“Janet Yellen’s approach might be one that’s more palatable for the economy,” said Marc Henn, president of Harvest Financial Advisors LLC. “Having her at the helm would [provide] a much better transition out of this quantitative easing.”

John Hauserman, president of RetirementQuest Wealth Management, is torn between the two. He said that Mr. Summers would take interest rates back to normal levels — a step Mr. Hauserman favors — but may run into trouble in the process.

“My concern, really, is that Summers, while he’s more likely to raise interest rates, is more of a loose cannon,” Mr. Hauserman said. “If that’s done without a lot of tact, it could cause pain.”

The White House will nominate the next Fed chairman this fall. Although Mr. Bernanke has not stated formally a desire to leave the post when his term expires on Jan. 31, Washington is feverishly anticipating his successor.

Ms. Yellen, a former economics professor at the University of California, Berkeley, is the former president of the San Francisco Fed and former chairman of the Council of Economic Advisers during the Clinton administration. In addition to being Treasury chief in the Clinton administration, Mr. Summers was director of the National Economic Council earlier in the Obama administration.

House and Senate Democrats are coalescing behind Ms. Yellen. In a meeting with Capitol Hill Democrats earlier this week, however, President Barack Obama tried to assuage concerns about Mr. Summers and said that other candidates could emerge, according to a Wall Street Journal report.

Mr. Summers’ close ties to Mr. Obama concern Harold Anderson, president of ParkShore Wealth Management.

Ms. Yellen “seems that she would be more independent,” Mr. Anderson said. “I get the gut feeling Summers would be a shill for the president.”

Sharon Appelman, director of financial planning and investment management at Francis Financial Inc., said the Ms. Yellen and Mr. Summers are equally qualified but she leans toward Ms. Yellen.

“She’ll focus a little more on employment and growth rather than just keeping inflation down,” Ms. Appelman said. “What we need is steady growth.”

Although he predicts that the Obama administration will want a “dovish” Fed chair, Bryan Beatty, a partner at Egan Berger & Weiner LLC, wants the next leader to raise interest rates.

“What we need more than anything is healthy savings — real money at the banks,” Mr. Beatty said. “It would be very beneficial for spending in our economy if [savers] got a little interest on their money and not have to risk it so much. [The Fed] is fixated on the asset side rather than the disposable-income side.”

Michael Williams, president of Altius Financial Inc., also favors higher interest rates. But he says they should be set by the market, not the Fed, which he wants to see abolished.

“The Federal Reserve has wreaked more havoc on our economy than any good [it’s] provided,” Mr. Williams said.

Regardless of who succeeds Mr. Bernanke, one surefire prediction is that the next Fed chief will not want to shut down the institution.