Wall Street wants Yellen, not Summers, as next Fed chief - page 2
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Fed’s Fisher Says More Contenders Considered for Fed Chief
Federal Reserve Bank of Dallas President Richard Fisher said more candidates are being considered as a possible successor to Fed Chairman Ben S. Bernanke, without citing the source of his information.
“Not all the names you’ve read about are all the names being considered,” he said in response to audience questions after a speech in Portland, Oregon.
Fisher said he respected all the contenders for the job, adding that it was important for the chairman to have “enormous humility” and devotion to the position. “What we do not need is a prima donna,” he said.
President Barack Obama on Capitol Hill told his party’s lawmakers on July 31 that candidates include former Fed Vice Chairman Donald Kohn and the decision wasn’t a two-way race between Lawrence Summers, Obama’s former top economic adviser, and Janet Yellen, the Fed’s current vice chairman.
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Why Larry Summers Should Decline to Become Fed Chair if Asked
Who will succeed Bernanke may affect the value of everything you either own or owe, even the value of the U.S. dollar itself. Aside from current Fed Vice Chair Janet Yellen, former Treasury Secretary Larry Summers has been in the news as someone who wants the job.
Summers’ biggest asset is that he is extremely smart; his biggest liability may be that he knows it and lets others know it, too. Without a doubt, he might want to check 'Fed Chair' off his bucket list. He certainly would have the backbone to push through unpopular policies. After all, it's the Fed's role to spoil the party, to "take away the punch bowl" when we feel good about economic prospects.
But Summers, while smart and well connected, is not an expert on monetary policy. His dissertation was written on tax policy. Indeed, his policies are driven by political ideology, not economic theory. I suspect most would agree that Summers is a highly political person. And that's where the crux lies: being Fed chair ought to be an apolitical role.
Every President may allow politics to play a role in nominating a Fed Chair, but in this case, Summers may want to consider his own role: currently, Summers has free access to President Obama, as evidenced in part by an extensive visitor log to the White House. Should he become Fed Chair, he would need to show restraint in meddling with politics. Add to that Summers’ own statements that the impact of monetary policy is limited in the context of today’s challenges, and that fiscal policy is where action must take place. We have to conclude that Summers can exert far more influence on policies in his current role than he could as Fed Chair.
Mr. Summers, do you only want to be offered the job so you can turn it down?
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The Fed, Lawrence Summers, and Money
When Lawrence H. Summers left his job as President Obama’s top economic policy adviser at the end of 2010 to return to Harvard University, one of his first steps was to set up a roster of part-time positions that would touch on just about every corner of the financial world.
But as he negotiated with a prominent venture capital firm in Silicon Valley, Mr. Summers made one thing very clear: he needed an exit plan, in case he returned to public service.
“That was generally the assumption,” said Marc Andreessen, the co-founder of the firm. “If he did, he needed a way to do a clean disengage.”
Today, the Obama administration is considering nominating Mr. Summers as the next chairman of the Federal Reserve. If the White House does so, Mr. Summers’s financial disclosure — including his recent consulting jobs, paid speeches and service on company boards — will be one of the hottest documents in Washington. Among the top contenders for the position, Mr. Summers has by far the most Wall Street experience and the most personal wealth.
In addition to rejoining the Harvard faculty in 2011, he jumped into a moneymaking spree. His clock was ticking partly because he knew that the Fed chairmanship, to which he has long aspired, was likely to open up in early 2014, when Ben S. Bernanke’s second term will come to an end.
“With Larry, my wife always says that it’s hard to be happy if you want to have the most money because you’ll never have the most money,” said Jeremy I. Bulow, an economics professor at Stanford University who is a friend and co-author of academic papers with Mr. Summers. “He’s kind of been going about his life just on the basis of ‘who knows what’s going to come next?’ and just sort of maximizing his experiences, given the opportunities in front of him.”
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Janet Yellen On The Fin. Crisis: I Didn’t See Any Of That Coming Until It Happened
Janet Yellen may no longer be the frontrunner for the Fed chairmanship at least according to the online betting market, where Larry Summers has taken a commanding lead over the former San Francisco Fed head, but she is certainly still the darling of the progressive left intelligentsia due to her supposed infatuation with perpetuating Bernanke's cheap deficit funding approach (i.e. making bigger government bigger-est) and her clarity of insight when it comes to perceiving the risks of aggressive Fed policy.
While we do not claim to know what Yellen's daily POMO quota would be, especially if she is faced with the same contracting deficit problems that are plaguing Bernanke now (although with the Egyptian civil war due any minute now, US deficit spending seems posied to surge giving the Fed much needed room to monetize a spike in Treasury issuance), and are the sole reason for the taper, we do know one thing: when it comes to her "foresight", rumors of its clarity and depth are certainly vastly exaggerated.
From the NYT which captured a moment of a 2010 FCIC hearing:
Ms. Yellen told the Financial Crisis Inquiry Commission in 2010 that she and other San Francisco Fed officials pressed Washington for new guidance, sharing the problems they were seeing. But Ms. Yellen did not raise those concerns publicly, and she said that she had not explored the San Francisco Fed’s ability to act unilaterally, taking the view that it had to do what Washington said.
Of course, this time her vision of the future "will be different."
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Someone that "Didn’t See Any Of That Coming Until It Happened" could be a next FED chief? It is not even funny
Someone that "Didn’t See Any Of That Coming Until It Happened" could be a next FED chief? It is not even funny
Isn't that always like that?
None of them had no idea otherwise they would have prevented it
The $4 Trillion Choice: Why the Stakes Are So High for Next Fed Chair
President Obama is mulling what could well be the most important decision of his second term – nominating Ben Bernanke’s replacement as Federal Reserve chairman.
Bernanke, whose second four-year term is set to end in January, has presided over perhaps the most dramatic period in the century-long history of the Fed, the mostly autonomous central bank that sets interest rates and controls the supply of money for the U.S. economy.
The credit crisis that emerged in late 2007 with a downturn in the housing market eventually led to a near-collapse of the financial system and the deepest economic recession since the Great Depression.
In response, Bernanke drove the short-term interest rates under its control to near zero, and unleashed three rounds of bond buying that have injected massive amounts of fresh money into the economy to keep inexpensive loans flowing in the economy.
The economic recovery, while slower than hoped, has continued since late 2009, and Bernanke has vowed to keep rates unusually low at least until the unemployment rate, now at 7.4%, falls to 6.5%.
The stakes surrounding Obama’s choice for Bernanke’s successor are unusually high. For one thing, the Fed chairmanship doesn’t frequently become vacant. Since 1979, there have been only three leaders of the Fed.
Paul Volcker was put forward by President Jimmy Carter and is credited with slaying runaway inflation and setting the scene for the ‘80s economic renaissance through punitively high interest rates. Alan Greenspan used opportunistic rate cuts to help the eoconmy through the 1987 stock-market crash and 1990 recession, ushering in the ‘90s boom.
Bernanke has also presided over an unusually aggressive stimulus policy, which continues for the moment in the form of $85 billion of Fed purchases of Treasury and mortgage bonds per month. His programs have ballooned the Fed’s assets to nearly $4 trillion from less than $1 trillion before the financial crisis.
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Summers-led Fed might raise rates faster than Yellen
Barring another financial crisis or slide back into recession, the next head of the Federal Reserve is likely to oversee a gradual normalization of monetary policy.
But that pace, including the first interest rate hike, might be somewhat quicker under former Treasury Secretary Lawrence Summers than under current Fed Vice Chair Janet Yellen, the two top contenders for the job, if their own comments are any guide.
Moreover, a Summers-led Fed would appear less likely to extend or expand the use of the extraordinary measures that the central bank has undertaken during the tenure of current chairman Ben Bernanke, whose term expires in January.
The distinction between Summers and Yellen is perhaps best illustrated by remarks they delivered at separate events in April.
Yellen, a strong supporter of Bernanke's policies, in a speech to business editors in Washington, exhorted the Fed to keep its focus on efforts to foster a lower unemployment rate, even if it comes at a cost of stronger-than-desired inflation.
By contrast, Summers, in a separate, closed event in California later that month, raised doubts that the unemployment rate could drop all that much lower without kindling unwanted levels of inflation.
He also was skeptical about how effective the Fed's massive bond buying program, known as quantitative easing, has been in promoting economic growth.
CONTINUITY
"Both Yellen and Summers are unlikely to commit the mistake of premature policy tightening, and that risk is probably somewhat lower with Yellen than Summers," said Michael Feroli, an economist with JP Morgan in New York.
That said, commitments the Fed has already undertaken make quick changes unlikely whoever gets the job, as St. Louis Fed President James Bullard noted on Thursday.
"I would expect a lot of continuity in policy, and I think any new person coming in would want that continuity. They don't want to come in and really rock the boat a lot. So I would expect a smooth transition," Bullard said in Louisville.
But slight differences in how the new Fed chair views policy could matter a great deal if the economy fails to recover as expected, or if there is a debate about how long to hold interest rates near zero once unemployment has fallen further.
The Bernanke-led Fed has already committed to keeping rates ultra-easy until unemployment hits 6.5 percent, and at least one official advocates lowering this forward guidance to 5.5 percent in order to hold down borrowing costs.
Summers might be less inclined to back such a move if the news on the economy continued to be mixed.
Yellen's strong support for the importance of driving down long-term unemployment, even if that meant inflation rising a bit, could be more open to such an aggressive move.
She has also laid out a so-called 'optimal policy path' that would permit a bit more inflation than the Fed's 2 percent goal in order to push down long-term unemployment, which she views as even more damaging to the nation's economic health.
As a result, there is a broad body of public written and spoken commentary in which she has articulated an approach which would not diverge much from the path already laid out by Bernanke, and might even be more dovish.
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Organized Opposition To Larry Summers Forms, Ramping Up For Confirmation Battle
A broad coalition of opponents to Larry Summers is working behind the scenes to make the former Obama economic adviser's nomination and confirmation to the Federal Reserve chairmanship as difficult as possible, according to several people involved in the operation.
The opposition so far has been muted, as members of the coalition, who are largely sympathetic to the president, hoped that reports of Summers' impending nomination were merely a trial balloon that could be popped without a public battle. But as the White House appears increasingly likely to forge ahead in nominating Summers to the post, his critics are preparing to increase the intensity and volume of their opposition.
The coalition has a variety of reasons for opposing Summers, related both to ideology and to his time as head of Harvard, where he started a conflict with leading African-American professors, oversaw an investment strategy that cost the endowment more than a billion dollars, and was ultimately forced out of his job for suggesting women may be innately inferior to men when it comes to the sciences. And as Treasury secretary in the late 1990s, Summers also led the push to deregulate Wall Street. His opponents worry that his brusque manner will spark a management crisis at the Fed, which could have dramatic consequences for the markets and the broader economy.
Among the critics are economists, women's groups, good government organizations, high-level donors and online advocates, such as MoveOn.org, CREDO, The Other 98% and Democracy For America, according to participants. The online women's group UltraViolet, the Campaign for America's Future and DailyKos are taking a leading role; the National Organization for Women, Mike Lux's American Family Voices and Color of Change are also said to be among those involved.
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Larry Summers the next big risk for emerging markets?
Thought speculation about Federal Reserve tapering was bad for emerging markets? Then just wait to see what happens if Larry Summers is appointed as the next U.S. central bank chief, analysts say.
They argue that if Summers replaces Ben Bernanke, whose second term as Fed chairman expires in January, any scaling back in the central bank's asset-purchase program would be ramped up by the hawkish Summers and deal a further blow to battered emerging markets.
Paul Krake, founder of the consultancy View from the Peak: Macro Strategies, said that it isn't when the Fed starts to take back its massive monetary stimulus but who takes over as Fed chairman next year, that's important to markets right now.
"The U.S. president is a pretty important job; but ask the Indians, the Indonesians, the Brazilians who's had more influence over their lives and the answer would be the Fed chief," he told CNBC.
"Larry Summers is not an advocate of QE [quantitative easing] and the reality is that all things being equal, he will unwind QE fast," Krake added.
Emerging markets from Brazil to India and Turkey have been hit hard since May on talk of an unwinding of the U.S. monetary stimulus that has provided global markets with liquidity in the past few years.
Talk that Larry Summers, a former Treasury secretary, is the choice candidate to become the next head of the Fed has gained ground in recent weeks. The other favored candidate is Janet Yellen, currently the Fed's vice chairman.
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