Fed Watch: Obama’s shortlist for next Fed chair
From the WSJ:
Treasury Secretary Timothy Geithner is expected to play a key role in advising President Barack Obama on whether to reappoint Mr. Bernanke. Mr. Geithner has worked closely both with Mr. Bernanke and with the leading alternative for the powerful post — Lawrence Summers, the former Treasury secretary, who is currently the president’s top economic adviser.
Before making a decision later this year, the White House also is expected to look at other economists, including Roger Ferguson and Alan Blinder, former Fed vice chairmen; Janet Yellen, president of the San Francisco Federal Reserve Bank; and Christina Romer, chairman of Mr. Obama’s Council of Economic Advisers.
My spin: What is the political landscape here? You would think that GOPers would prefer Bernanke since he was a Bush appointee, while the rest are no-doubt Dems. And it’s not like Obama would dump BB for John Taylor or Glenn Hubbard. Yet Big Ben has come to personify Bailout Nation to many on the right. And at least one high-profile conservative, CNBC host Larry Kudlow, seems to have a soft spot for Summers:
So given the choice between those two, who do I like? Well, meaning no disrespect to Mr. Bernanke, I think I’ll go out on a limb and choose Summers. Why? Because during the Clinton years, when Summers held several Treasury posts (including Treasury secretary), a strong-dollar policy was in place. Back then I called it King Dollar. And I frequently praised Robert Rubin and Larry Summers for backing King Dollar.
And since I believe in a price-rule approach to Fed policy, where the dollar should be stable and the Fed head should watch open-market prices such as the dollar, gold, and commodities in order to promote price stability and economic growth, Larry Summers’s résumé as a Clinton-Rubin alumnus is closer to my liking.
And in terms of Mr. Summers’s so-called prickly personality, that might be an excellent credential for a truly independent Fed chairman. Paul Volcker had a prickly personality, but he was the inflation slayer (with Ronald Reagan’s help).
Ben Bernanke, on the other hand, seems to be targeting the unemployment rate, and he has never given much emphasis to a stable dollar as a key Fed-policy variable. Right now the bond markets are pricing in five or six Fed tightening moves as the economy shifts toward recovery. And at least until recently, the dollar was soft and gold was strong. But if Mr. Bernanke targets the unemployment rate, the Fed will overstay its easy-money welcome and inflation will shoot up in the years ahead.