Summers as Fed Chairman? White House Says Not Just Yet
Next week could be a significant one for the United States economy. The Federal Open Market Committee is scheduled to meet for its September 18-19 meeting, and the atmosphere is thick with taper talk. Many market watchers and economists — including some at the Fed itself — have suggested that the time is right for policymakers to reduce the flow rate of asset purchases. Such a move could send a sort of shock wave around the world as financial markets adjust to the new environment.
But a change in policy isn’t the only announcement people are expecting. According to Nikkei, a Japanese business daily, President Obama is gearing up to announce his nomination for the next chair of the Fed, and the news could come as early as the end of next week, after the conclusion of the FOMC meeting. That candidate is reportedly former Treasury Secretary Lawrence Summers.
However, this news — provided to the publication by anonymous sources — is suspect. Observers immediately questioned the legitimacy of the claim, and the White House was quick to comment. Amy Brundage, a deputy press secretary for the economy, tweeted:
Current Fed Chairman Ben Bernanke’s term expires in January. Bernanke was appointed the 14th chairman of the Federal Reserve by President George W. Bush in February 2006 and was renominated by Obama for a second term in January 2010. The two candidates reportedly at the top of the short list are Summers and current Fed Vice Chair Janet Yellen.
The economy and, in particular, government involvement in the recovery have become the biggest issues facing Obama in his second term. Accommodating monetary policy has defined post-crisis economics, and financial markets have become addicted to federal purchases of bonds and mortgage-backed securities. The future of monetary policy is directly related to — and in many ways dictates — the ongoing narrative of the U.S. economic recovery. Whoever leads the Fed after Bernanke will have considerable control over those policies.
While it’s impossible to predict what Bernanke or Obama will decide come January, Bloomberg posed the question to a group of financial and economic decision makers to get the market consensus.
According to the survey, published in May, 34 percent of respondents believe that Yellen is most likely to take the top spot in 2014. This is unsurprising, given Yellen’s decidedly level-headed and intelligent grasp on the current economic situation. With 27 percent of the vote, Bernanke is seen as the second-most likely person for the job. After that, 22 percent of respondents have no idea, suggesting that survey participants aren’t thinking too hard about this question just yet. Six percent think that former Treasury Secretary Timothy Geithner will be given the job.
That Summers is one of the mad geniuses trolling the upper echelons of the U.S. government is something even critics admit — he became a tenured Harvard professor at 28 and has a thick portfolio of compelling academic papers. However, those who worked with Summers have lauded him for his brilliance, not his personality. Reports from nearly every position Summers has held indicate that he is hard to work with, sometimes dismissive of ideas and people, and at times rhetorically combative.
As an economist, he is perhaps most well known for serving as treasury secretary under President Bill Clinton from July 1999 to January 2001. He also served as director of Obama’s Economic Council from 2009 to 2010, where he quickly earned the respect of the president.
There has been a substantial amount of public pushback against Summers as a possible Fed chair. One cornerstone of the opposition is the fact that Summers played an key role in convincing Congress to pass the Gramm-Leach-Bliley Act in 1999, which repealed some of the Glass-Steagall Act.
The Glass-Steagall Act refers to provisions in the Banking Act of 1933 that put a wall between commercial and investment banking. This limited securities trading activity and ostensibly barred banks from trading the types of financial products that were instrumental in the financial collapse. The repeal of these provisions has been cited a a direct contributor to the crisis.