Economics, Monetary Policy, Pethokoukis

With Summers gone, will Fed job fall to Yellen?


Larry Summers was President Obama’s obvious preferred choice to be next Federal Reserve chair. But with at least four probable Democrat “No” votes on the Senate Banking Committee where his own party outnumbers Republicans just 12 to 10, Obama faced either a) making some unspecified huge concessions to party liberals, or b) asking for some awfully heavy lifting from Senate GOPers for the architect of the 2009 stimulus. Both were a bridge too far for the Obama White House, especially after the Syria debacle. Bashar al-Assad’s regime is alive, and the Larry Summers nomination is dead:

The WSJ:

Lawrence Summers, a former U.S. Treasury secretary, called President Barack Obama Sunday to say he is pulling out of the contest to succeed Ben Bernanke as chairman of the Federal Reserve.

The NY Times:

Lawrence H. Summers, one of President Obama’s closest economic confidantes and a former Treasury secretary, has withdrawn his name from consideration for the position of chairman of the Federal Reserve amid rising opposition from Mr. Obama’s own Democratic allies on Capitol Hill.

The FT:

Lawrence Summers has taken himself out of the running to be the next chair of the Federal Reserve, withdrawing his name after opposition from a bloc of key Democratic senators indicated they would oppose his nomination.

1. The smart money would seem to be on Obama desiring to get this mess behind him ASAP and quickly nominating Fed Vice-chair Janet Yellen. Of course, the president might well prefer former Treasury Secretary Timothy Geithner who shares what was perhaps Summers’s most important qualification: being a known quantity to the president.

2. But a Geithner nomination would conceivably be every bit as acrimonious as Summers’s was shaping up to be. It isn’t January 2009, and Geithner is no longer the Indispensable Man. And anyway Geithner apparently does not want the job. Same goes for Ben Bernanke, although there already rumors buzzing that he might stick around for a spell. On the other hand, it’s unlikely a single Democrat would vote against Yellen or even offer a single substantive criticism.

3. Republicans would surely give her a tough time, but would they really filibuster the first female Fed nominee on a technocratic basis? Yellen is eminently qualified for the job. GOPers should also consider that a Yellen Fed may go a long way toward creating a more rules-based monetary policy, a supposed center-right goal.

4 thoughts on “With Summers gone, will Fed job fall to Yellen?

  1. No Summers = no taper

    No taper = QEInfinity (at least for now).

    QEInfinity = Futures +1%, gold up, USD down

    There is a real danger that the Fed can never taper now.

    • If by “work” you mean “create an untenable situation whereby an unstable balance sheet grows ever larger, making unwinding and exiting positions increasingly risky, and further increasing market dependence on stimulus, making taper impossible,” then you are correct.

      Your slip was also correct.

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