Maureen Dowd wants to know if President Obama will continue the good ole boy club by selecting Larry Summers to replace Ben S. Bernanke as head of the Federal Reserve. That’s one question she posed yesterday in a The New York Times opinion piece on who Mr. Obama may select as Federal Reserve chair.
Mr. Obama could go the good ole boy route by selecting a fellow member of the Ivy League club and a man he has worked with. As Robert Reich pointed out in another piece for the Times, the Federal Reserve is currently the de facto manager of the U.S. economy, given the abdication by Congress of the authority to properly manage it. And while Ms. Dowd raises some valid points about the difference in style between Mr. Summers and the other leading contender, current Fed vice-chair Janet Yellen, I think waht’s more important is the choice of someone that invites the question as to how representative our government is?
Granted the Federal Reserve is an independent agency but it has been called up indirectly by the Congress to shoulder more of the burden of lifting the economy first out of the Great Recession and now out of sluggish growth. The Fed has been injecting cash into the economy via the purchase of mortgage-backed and agency asset-backed debt. Two rounds of this quantitative easing have come and gone and in the midst of QE3, the financial markets are waiting to see when the purchases in this round will start tapering off.
Yesterday here in Atlanta the president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, reiterated that the current asset purchase program is continuing at $85 billion a month. While no fixed date is set for the end of the program (the Fed prefers not make any definitive move until a showing that unemployment falls to 6% or less), according to Mr. Lockhart, “Nonetheless, the expectation that purchases will be tapered and ultimately ended is now firmly established. Financial market participants put a higher probability on near-term tapering happening than not.”
But with all this monetary policy activity, labor productivity growth and growth in gross domestic product have been, in the words of Mr. Lockhart, “lackluster.” It leads me to ask, what has been the benefit to the populace from the Feds’ QE program?
I have my reservations about monetary policy. Even at fed funds rates between 0 and .25% and relatively low interest rates on Treasury debt, these low rates, which also influence the rates consumers and business see for loans, have not translated into economic growth for all. While it’s not fair to hang all the blame for economic sluggishness on the Federal Reserve, I believe any legitimacy in the choice of a Fed chairman can only be expressed with someone willing to exercise some outside the box thinking, even if it means simply being honest with the American public as how far Fed action can take us.
Whether that person is Janet Yellen or Larry Summers, I have no idea.