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editorial

Tornado at the Fed? Obama has better choices than Summers

When Federal Reserve chairman Ben Bernanke’s term expires in January, his successor’s first duty will likely be to oversee the end of quantitative easing, the Fed’s massive bond-buying program to stimulate the economy. It’ll be a delicate task, one that will require clear, deliberate communication, and it’s best overseen by someone who understands and values deeply how a dynamic, interconnected institution like a central bank should operate. Larry Summers, the hard-charging former Harvard president who looms large in Democratic economic-policy circles, is not that person. His talents, while substantial, don’t match up well with the Fed’s needs, and his liabilities are far from irrelevant to the job.

A former Treasury secretary and top Obama economic adviser, Summers is widely considered one of his generation’s leading economic thinkers. He’s rumored to be the president’s favored candidate. Still, little about his background makes the case he’ll be a good custodian of the Fed’s initiatives to avoid future financial risk. Throughout the 1990s, Summers championed deregulation of the securities industry. He blocked early efforts by Brooksley Born, then chairwoman of the Commodity Futures Trading Commission, to regulate derivatives, the financial instrument most to blame for the housing bubble. Today, Summers has close Wall Street ties, especially to Citigroup, where he has been a paid consultant since 2012. That relationship, plus Summers’ political ties, would undercut the Fed’s image as a credible independent regulator.

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By all accounts, the Fed operates in a collegial and consensus-oriented way. Summers doesn’t, as his rocky tenure at Harvard demonstrates. He rightly tried to stir up, and articulate a vision for, a university held back by its bureaucratic inertia and sense of self-satisfaction. No doubt many set-in-their-ways government agencies could benefit from a tornado like Summers, but the Fed isn’t one of them. Statements by the Fed chair routinely move markets, and diplomacy simply isn’t Summers’ forte.

There are other qualified candidates to lead the nation’s central bank. Another front-runner is Janet Yellen, the Fed’s current vice chair. She ran the San Francisco Federal Reserve bank just before and during the financial crisis. She recognized the housing bubble before many others and, according an analysis by the Wall Street Journal, she has made the most accurate economic forecasts of any Fed official since 2009. She’s considered a dove on monetary policy, which means at the moment she is — probably correctly — more worried about high unemployment than an outbreak of inflation. The selection of Fed chair shouldn’t be a popularity contest, but Yellen is well-liked for her humility and frankness.

Other intriguing contenders for the post include Roger Ferguson, a former Fed vice chairman, or William Dudley, the New York Fed chief. What’s clear is that, even without Summers in the mix, Obama has plenty of other strong options.

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