Obama’s Fed Nominee Was Pivoting to Asia Long Before He Was

Asian markets seemed pleased by the news, which broke Tuesday evening (or Wednesday morning, Asia time) that President Obama would nominate Janet Yellen for the position of Fed chair this afternoon. Policymakers in the region, who’d been cheering for her, spoke warmly of the selection — mostly because the relatively dovish Yellen is seen as someone who’ll be slower to roll back the easy money policies of her predecessor, giving Asia more time to prepare for the day the greenback spigot turns off.

But Yellen also has something of a special relationship with the region, which Bank of Japan Deputy Governor Hiroshi Nakaso alluded to when he told the Wall Street Journal that "we already have a relationship of mutual trust with each other." Yellen spent six years, from 2004 to 2010, as president of the Federal Reserve Bank of San Francisco, a position that involved traveling to Asia at least once a year on fact-finding missions, and brought her to countries across the region from South Korea to Vietnam to India. The reports she produced after each trip are typically brief — and sometimes rather dry — accounts of the state of each country’s economy and the challenges it is likely to face. But they do give us an occasional hint about the likely new Fed chair’s thoughts on the world’s most economically dynamic region.

During a November 2007 visit to Southeast Asia, for instance, Yellen was charmed by Vietnam’s frenetic energy. "My instant impression was one of a widespread entrepreneurial spirit and an openness to new and practical ideas," she recalled. "The streets are crowded with motor scooters and economic activity, round-the-clock construction activity, and urban centers that already mirror those in far more developed economies. The sense of optimism and excitement is palpable."

Visiting India in 2005, she was struck by the country’s economic disparities, which she called "dizzying." "We were lucky enough to see the serene magnificence of the Taj Mahal," she wrote. "Another manmade wonder — more of the 21st century than of the 17th — was a technology campus, for all the world like any such facility you might see in Silicon Valley. But en route to both, we saw other faces of India — shanties, roads clogged not just with cars, but with pedestrians, peddlers, pushcarts, cows, goats, even a caravan of camels. Scenes like these are not only unforgettable, they are also emblematic of the challenges the country faces."

Yellen paid at least three visits to China as president of the San Francisco Fed, in 2004, 2006, and 2009, visiting the financial centers of Hong Kong and Shanghai, the capital Beijing, and the western city of Chengdu, to get a first-hand look at China’s inland development efforts. She brought back thorough reports on a range of issues related to the world’s second-largest economy, from its progress on banking sector reforms (in 2004, she was "guardedly optimistic") to China’s giant current account surplus ("few people … believe that even a more substantial RMB appreciation would have much effect on China’s overall trade balance").

Throughout, Yellen demonstrates a keen awareness of how the Fed’s policymaking, and U.S. economic developments more generally, play out in Asia. In China, she found officials who told her that, while they were eager to see the U.S. make a full recovery, they were worried about the impact that loose monetary policies could have on the value of their dollar-based assets, as well as the undesired stimulus effects. Singaporeans told her they were skeptical of the notion of "decoupling" — that is, that the U.S. and Asian economies have delinked to some extent in recent years — and the Koreans and Japanese described how their banks were sent scrambling for capital following the U.S. subprime mortgage collapse, despite not having wide exposure to U.S. mortgages.

How much does it matter that Janet Yellen has a background in Asia? It surely doesn’t mean that as Fed chair, she’ll be considering the fate of Korean bankers when weighing interest rate decisions (or at least, they’ll be far, far from the forefront of her mind). Still, consider this: Yellen’s one-time rival for the Fed chief job, Larry Summers, is not the most popular man in Asia. That’s thanks in part to his stint at the Treasury Department, during the 1997 Asian financial crisis, when he and other Western policymakers handed down a round of one-size-fits-all policy prescriptions for a range of Asian economies that today are widely believed to have made things worse.

Going on a handful of fact-finding missions doesn’t make Yellen an Asia expert either. But if nothing else, traveling from Japan to India must be a good lesson in the diversity of Asian economies; a little nuance in thinking about the world’s most important economic region is never a bad thing.