The nomination process for a Federal Reserve chairman is not usually as interesting or noteworthy as it has been in the past few weeks with Larry Summers in the mix.
In part, that’s because the Fed’s influence over the economy and fluctuations in markets has never been greater than it is now.
Even more so, though, the story is capturing widespread attention because President Obama has introduced Summers — a character that brings together Washington, Wall Street and Ivy League news in a way that few others could.
And his stints in Bill Clinton’s Treasury Department and Obama’s National Economic Council have defined the past 20 years of Democratic Party economics, to the chagrin of many Democrats.
The fact that Summers, who has been accused of sexism and general meanness in the past, has a woman, Fed vice chair Janet Yellen, for competition only heightens the drama.
Past Fed chair selections were boring compared to this one. The 2010 confirmation vote for current Fed chair Ben Bernanke did not approach the level of news coverage devoted to Summers vs. Yellen, even though it was notable because 30 senators opposed him.
In the confirmation hearings for his first term in 2006, Bernanke was approved by voice vote on the same day that Samuel Alito was confirmed as a Supreme Court Justice. The New York Times noted how little fanfare accompanied his confirmation with the headline: “Bernanke silently slips under almost all radar.”
Summers, on the other hand, is front page news — without being nominated or even publicly mentioned by the administration — after Obama defended him against House Democrats’s criticisms yesterday on Capitol Hill.
And never before have senators weighed in on a candidate before the president nominated anyone to the post, as 20 liberal Democrats did last week when they endorsed Janet Yellen as a response to rumors about Summers being the frontrunner. That’s not to mention the 37 female House Democrats who also endorsed Yellen, despite the fact, unlike senators, they have no role in the confirmation process.
Allan Meltzer, author of an authoritative history of the Fed, said that there have been high-profile confirmation battles in the past, “but nothing like this.”
Is it a threat to the central bank’s independent control of monetary policy that the president’s choice for Fed chair has become so politicized? Meltzer called the Fed’s independence a “myth” and that it’s always been subject to politics, but “never quite so blatantly as the present time.”
Bob Eisenbeis, chief monetary economist for Cumberland Advisors and a former Fed economist, said that the intra-Democratic Party maneuvering around Summers’ possible nomination is “more about a problem between Congress and the president than about the Fed’s independence.”
White House officials have said that the nomination for Fed chair will come later this fall. If Obama does nominate Summers, he risks a Democratic civil war and what would be the most politically-charged confirmation fight in the Fed’s history. During confirmations Democrats would likely outdo Republicans in grilling Summers. They would poke into his role in the deregulation push of the late ‘90s; his ties to Citigroup, D.E. Shaw, and other financial companies; his role in Harvard’s endowment losing $1.8 billion, and much more.
But if Obama’s defense of Summers in the Capitol on Wednesday and insider reports are to be believed, Obama thinks Summers is worth the trouble.