Much has been written in the last couple of weeks about Larry Summers becoming the next chairman of the Federal Reserve Board. The press is speculating about a possible horse race between him and Janet Yellen, currently the Fed’s vice chair.
A lot of time has been devoted to trying to determine what monetary policy each of the candidates would follow, and the coverage this week was no different.
Here’s the story from Tuesday’s Wall Street Journal about Summers:
Lawrence Summers, a leading candidate to be the next Federal Reserve chairman, likely wouldn’t beat a rapid retreat from the easy-money policies pursued by Ben Bernanke if he gets the job.
A close reading of Mr. Summers’s columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed’s huge bond-buying programs, known as “quantitative easing,” but that he also has said he sees few harmful side effects stemming from them.
Mr. Summers’s views are of intense interest, both in Washington and on Wall Street, because the next Fed chairman likely will have to manage the exit from extraordinarily easy policies intended to bolster the economy. Investors have become unsettled about any mention of the Fed’s pulling back from the bond buying, and both Democrats and Republicans have been vocal about what they would like to see from the next Fed chief.
Their records show that both Mr. Summers and his apparent chief rival for the Fed nomination, Janet Yellen, currently the central bank’s vice chairwoman, have said the government, in general, should do more to support the current weak economy. Mr. Summers has been an outspoken advocate of more federal spending now, particularly on infrastructure, to boost growth. His views on monetary policy are more nuanced.
Congress is weighing in with their opinions on who the next nominee should be, according to Bloomberg:
The Senate’s second-ranking Democrat said he would “have a lot of questions” if former Treasury Secretary Lawrence Summers is chosen to replace Federal Reserve Chairman Ben S. Bernanke.
Senator Richard Durbin’s comments in an interview at the Capitol reflect anxiety within the Senate that President Barack Obama may nominate Summers. Durbin is among 19 Democratic senators and one independent who signed a July 26 letter to the White House praising Federal Reserve Vice Chairman Janet Yellen and urging Obama to nominate her to lead the central bank.
“If Summers is the nominee, I sure would have a lot of questions to ask him,” Durbin of Illinois said yesterday. “He’s served several administrations, and I’d like to hear his point of view on the role of the Fed in terms of helping the middle class and creating jobs.”
Although the letter didn’t mention other potential candidates, it shows that Yellen is gaining support for the nomination and points up possible difficulties Summers, if nominated, may encounter in winning Senate confirmation.
Last month, Obama said in an interview with Charlie Rose that Bernanke had stayed in the post “longer than he wanted.” The Fed chairman hasn’t indicated whether he would seek or accept a third term. Bernanke’s four-year term ends Jan. 31.
The New York Times did a big piece on July 25 about Yellen and Summers, outlining their differences and reasons why President Obama would select each one:
Janet L. Yellen, the Fed’s vice chairwoman, is one of three female friends, all former or current professors at the University of California, Berkeley, who have broken into the male-dominated business of advising presidents on economic policy. Her career has been intertwined with those of Christina D. Romer, who led Mr. Obama’s Council of Economic Advisers at the beginning of his first term, and Laura D’Andrea Tyson, who held the same job under President Clinton and later served as the director of the White House economic policy committee. But no woman has climbed to the very top of the hierarchy to serve as Fed chairwoman or Treasury secretary.
Ms. Yellen’s chief rival for Mr. Bernanke’s job, Lawrence H. Summers, is a member of a close-knit group of men, protégés of the former Treasury Secretary Robert E. Rubin, who have dominated economic policy-making in both the Clinton and the Obama administrations. Those men, including the former Treasury Secretary Timothy F. Geithner and Gene B. Sperling, the president’s chief economic policy adviser, are said to be quietly pressing Mr. Obama to nominate Mr. Summers.
The choice of a Fed chair is perhaps the single most important economic policy decision that Mr. Obama will make in his second term. Mr. Bernanke’s successor must lead the Fed’s fractious policy-making committee in deciding how much longer and how much harder it should push to stimulate growth and seek to drive down the unemployment rate.
Ms. Yellen’s selection would be a vote for continuity: she is an architect of the Fed’s stimulus campaign and shares with Mr. Bernanke a low-key, collaborative style. Mr. Summers, by contrast, has said that he doubts the effectiveness of some of the Fed’s efforts, and his self-assured leadership style has more in common with past chairmen like Alan Greenspan and Paul A. Volcker.
But the choice also is roiling Washington because it is reviving longstanding and sensitive questions about the insularity of the Obama White House and the dearth of women in its top economic policy positions. Even as three different women have served as secretary of state under various presidents and growing numbers have taken other high-ranking government jobs, there has been little diversity among Mr. Obama’s top economic advisers.
The decision is a big one that will shape the future of our economy. While that might sound a bit hyperbolic, it’s true. The Fed’s actions on quantitative easing will have a lasting impact on investor sentiment, bond prices, and stocks in the coming months. While both front-runners seem to have pros and cons, what’s most important will be stabilizing the nascent economic growth and a smooth transition.