FX MONETARY POLICY
Mr. Obama kicked off speculation about the Fed job in an interview with Charlie Rose in June in which he said Mr. Bernanke “had stayed a lot longer than he wanted or he was supposed to”. Mr. Bernanke’s second four-year term as Fed chairman expires Jan. 31. Te very public disclosure of Mr. Bernanke’s plans led to an unusually public debate over potential successors.
While I am writing this article it is still undecided who will serve as Federal Reserve Chairman in the next term starting end of January 2014. Till a couple of weeks ago this uncertainty would have mattered more. Te front-runner was a candidate which would have meant a clear break with past: Lawrence Summers. But then he withdraw from the race and the current short list of most likely nominations, from Yellen to Kohn, from Ferguson to a third Bernanke mandate, would bring a choice pretty much in line with recent Federal Reserve policy and behavior.
Why did Summers withdraw?
“I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve,
the Administration, or
ultimately, the interests of the nation’s ongoing economic recovery.”
Tis was the main passage of the letter Summers sent to Obama to withdraw his candidacy.
Mr. Summers, who was director of Mr.
Photographer SAUL LOEB/AFP via Getty
Obama’s National Economic Council early in his presidency, was widely believed to be the president’s first choice. But opposition from liberals and women’s groups and, importantly, from some Senate Banking Committee Democrats, had been mounting. For them, Mr. Summers became a symbol (a caricature, his admirers say) of all the failures of financial deregulation that led to the 2008 financial crisis. Critics seized on Mr. Summers’s reputation for abrasiveness, his closeness to Wall Street and accusations that he was hostile to women. Ezra Klein on the Washington Post summarizes well the situation: “Larry Summers’s campaign to replace Federal Reserve Chairman Ben Bernanke wasn’t doomed by any of the typical doubts about a potential Fed chief. Senate Democrats weren’t worried that Summers was too tolerant of inflation or insufficiently committed to quantitative
easing. 44 FX TRADER MAGAZINE October - December 2013
In fact, they weren’t worried about his opinions on monetary policy at all. Summers fell because at least five Democrats on the Senate Banking Committee doubted his bona fides as a bank regulator. But even that doesn’t get at the whole truth. Summers really fell because those Senate Democrats — and many other liberals — don’t trust the Obama administration’s entire approach to regulating Wall Street. For all the talk of Summers’s outsized personality and polarizing past, he really lost because he was a stand-in for Obama.”
For sure the confirmation process was going to be acrimonious and eventually unsuccessful. It is likely that Obama wanted to avoid wasting precious political capital
in such a
battle with two bigger ones going on at the same time: Syria and debt ceiling.
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