Much, far too much, has been said and written about the circus that is the unofficial ‘race’ for the Federal Reserve’s chairmanship. Without rehashing the curious battle between former Obama adviser Larry Summers and Fed Vice Chair Janet Yellen, Oppenheimer Funds chief economist Jerry Webman makes a good point about why a Summers appointment could create the appearance of partisanship in the conduct of monetary policy:
Historically, U.S. presidents have had mixed results from putting ‘their man’ at the head of the Fed table. President Truman thought he had an accommodative chairman in William McChesney Martin and got the man who famously took away the punch bowl. President Nixon also looked for a more accommodative chairman and unfortunately got one. I’m more impressed with Presidents Reagan, Clinton and Obama, who reappointed their predecessor’s man and got independent and (mostly) sound monetary policy. Sure Bernanke moved to the Fed chair from the chair of President Bush’s council of economic advisors, but even to his critics he’s never appeared to be a partisan figure – certainly not a GOP operative.
Ironically, many expect Summers, who has expressed doubts about the effectiveness on quantitative easing, to be more hawkish than Yellen, long seen as among the most dovish of Fed officials on interest rate policy. But that doesn’t really matter in terms of the message that it would send to the public and financial markets, argues Webman.
I have no doubt that Larry Summers, if he is chosen, has the knowledge and experience needed to lead the Fed effectively, and he certainly has proven willing to take unpopular stands. But the favorite candidate of the White House staff – honorable folks though they may be – will struggle to overcome critics who see him as the ‘President’s Man’ rather than the neutral arbiter of monetary policy and, with increasing importance, financial regulation.
Dr. Summers declined to comment through a spokesperson.