Wednesday, May 23, 2018
Business

Fed battle goes public

JACKSON HOLE, Wyo. — Bette Midler wouldn't normally be expected to trumpet her opinion on who should be the next chairman of the Federal Reserve.

This time is different.

A battle over what's arguably the world's most powerful economic post has turned into an unusually public struggle over two renowned economists — Fed Vice Chairwoman Janet Yellen and former Treasury Secretary Larry Summers.

Chairman Ben Bernanke is expected to step down when his second term ends in January, and the contest to succeed him is sure to spark chatter at this week's annual meeting of central bankers in Jackson Hole, Wyo. While the principals have kept mum, their warring camps have waged a battle that's riled Congress, spawned opinion columns and sparked commentary from notables like the Divine Miss M.

Midler recalled that before the 2008 financial crisis, Summers resisted efforts to regulate the kinds of risky investments that helped ignite the crisis.

Sample Midler tweet: "HUH. The architect of bank deregulation, which turned straight-laced banks into casinos and bankers into pimps, may be next Head Fed: Summers."

"Most presidents strive for a smooth, quiet transition that doesn't put markets on edge," said David Jones, an economist and author of several books on the Fed. "Now, we have this knock-down, drag-out fight."

Until a few weeks ago, Yellen, the No. 2 Fed official, was seen as the front-runner, though some thought President Barack Obama might urge Bernanke to stay for a third term. Yet Summers eventually emerged as a strong contender with the backing of senior Obama officials. Summers had served in the Clinton Treasury Department, helping manage the Mexican currency crisis in 1995 and the Asian currency crisis in 1997-98.

By contrast, Yellen isn't well-known outside central bank circles and has yet to play a leadership role during a global crisis. Her supporters argue, though, that Yellen has played a key if less publicized role at the Fed. She has been its representative at international finance meetings and has helped develop the Fed's plans for responding to a future global crisis.

Asked about the chairmanship at a news conference this month, Obama defined the main qualification as "somebody who understands they've got a dual mandate" of pursuing low inflation and maximum employment.

Where Yellen and Summers might differ is on regulation. The Fed is charged with overseeing the nation's biggest banks and implementing stricter rules imposed by the Dodd-Frank Act, which aims to curb the abuses that helped ignite the 2008 crisis.

Both have backed tighter regulation. But Summers' critics argue that he's established ties to big banks and might be overly sympathetic to their priorities. And as Treasury secretary, Summers backed legislation that erased boundaries between commercial and investment banking. Critics believe that change let banks make riskier bets that led to the crisis.

 
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