There is a growing notion that the Larry Summers will be the next Chairman of the Federal Reserve, replacing Ben Bernanke. US President Barack Obama reportedly made a “full throat” defense of Summers, as supporters of the former treasury secretary seem to have the upper hand in convincing Obama for the nomination, over Vice Chair Janet Yellen.
If Summers is indeed nominated (and it could come as soon as August), the markets are due for even more turbulent times.
Forex Live reports that Obama was “very adamant in his defense” on Summers, given the long list of criticism against him. Ezra Klein says that Summers’ supporters are more quiet, but are heard “where it matters”.
Also other media outlets place Summers as the front runner. Summers is quite infamous for supporting the big deregulation of the financial system during his time as treasury secretary in the late 90s, under US president Bill Clinton. The elimination of the Glass-Steagall act and Summers’ refusal to allow regulation of derivatives are considered to be part of the problems leading to the global financial crisis of 2008. Clinton regretted some of these moves – Summers didn’t.
Summers is also criticized for his managed of Harvard University and for his time as the head of the Obama’s National Economic Council, when he didn’t push for more stimulus.
Regarding the US dollar, Yellen is considered as a dove, and Summers made dismissive remarks about QE. So, nominating Summers will probably strengthen the US dollar.
However, the aforementioned Klein article brings quotes from supporters who claim that Summers could actually have more room on the dovish side, as he is considered hawkish.
What will Summers do if he takes over the Fed in January 2014? Will he sow the seeds for more bubbles? Will he be hawkish or actually dovish? With Yellen, the path is clearer, as she worked side by side with Bernanke.
With Summers, it could be a wild ride.