The Federal Reserve is, at the risk of simplicity, really effin' important. They do a ton of things, arguably the most vital of which is regulating how much money circulates throughout the economy. Money, also, is important. The Fed prints money in an attempt to fulfill its "dual mandate" to keep both inflation and unemployment low. Think of it like candy: you want to give out enough candy for people to be happy (employment), but not too much that people become sick from the sugar (inflation).
Unsurprisingly, this means the person who becomes Chair of the Federal Reserve needs to be really awesome. And by January of next year, President Obama needs to choose someone to replace Ben Bernanke, the current Chair. If not, things could get ugly, quickly.
Originally, it seemed like Obama was deadset on picking Larry Summers, the former President of Harvard. Larry Summers is, undoubtedly, really really smart. He's the former Secretary of the Treasury, and one could certainly do worse than him.
But Summers had some substantial flaws. He was a large advocate for bank deregulation in the 1990s and passed rules that allowed for increased derivatives trading, which played a role in the 2008 Financial Crisis. Detractors call him abrasive and difficult to work with, and as President of Harvard he attracted substantial controversy for implying that women are less innately intelligent in math and science. Sexism like that isn't ideal in any official.
Summers' sexist comments are especially bad in light of the fact that Obama was favoring him over a woman who disproves that very notion. Her name is Janet Yellen, and she's the current number two at the Federal Reserve. She's also awesome.
She's been a consistently strong voice to fight unemployment through more aggressive monetary policy, and she's right. The Wall Street Journal says that Janet Yellen has consistently had the most accurate predictions of anyone on the Federal Reserve Open Market Committee.
The objections to her have been pretty weak. Al Hunt of Bloomberg argued that "she lacked gravitas." Gravitas, of course, meaning something closer to "testicular fortitude." It's more severe sexist rhetoric than most, but it's indicative of a larger problem.
Obama, too, has been rightly criticized for favoring Summers over Yellen. Yellen is the best candidate commonly mentioned (maybe ignoring the equally great but rarely discussed Stanley Fischer), regardless of her gender. BNP Paribas argued that choosing Summers over Yellen would shave .5% off US GDP in 2014. That means 350,000 or so people would have been unemployed unnecessarily. Pretty crappy even if you ignore the implications of Obama consistently favoring male candidates over female in many high-level positions.
Luckily, Larry Summers announced he will not seek the chairmanship of the Federal Reserve today. This left Obama with some egg on his face.
So, now that Obama has been forced into making the right decision, he should do his best to make the simple and correct choice. Appoint Janet Yellen, and put this entire mess behind us.
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