by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In front of a full caucus of House Democrats, Obama offered a full-throated rebuttal to the attacks of left-wing and feminist groups who have been coalescing around current Fed vice chair Janet Yellen. Obama told the Democrats “not to believe everything you read in the Huffington Post.”
Of course, with Ben Bernanke’s term ending in January, this [is] all about the debate over a successor to the Fed chair. It’s a timely topic. But here’s the problem for Mr. Summers: Even though Obama has yet to make a choice on the matter, the president’s strong defense of Summers reduces the likelihood that Summers will be appointed. Why? Because Summers now looks like Obama’s man, even if the president hasn’t yet said so.
Consider this: If Summers looks like Obama’s guy at the Fed, what does that do to the all-important principle of Federal Reserve independence? Remember Arthur Burns? Dick Nixon’s guy at the Fed way back in the early 1970s? What a catastrophic inflationist period that turned out to be as Burns pumped money into the economy in order to get Nixon reelected. Nobody wants to repeat that. And that’s why Obama basically terminated a Summers nomination when he went to bat for him on the Hill. When it comes to appointing Fed heads, I’ve never seen anything like it.
Now, I’m not weeping about any of this. Janet Yellen and Larry Summers, two very smart people, are nonetheless Keynesian fine-tuners when it comes to monetary policy. And we’ve all had enough fine-tuning from Ben Bernanke. It’s probably not going to follow from a Fed nomination by a Democrat president, but what U.S. monetary policy really requires is a clear set of rules to stop the ad hoc, pillar-to-post nature of Federal Reserve operations.