Forex »

Lawrence Summers: The right candidate for next Fed Governor?

Share on StockTwits
Published on
Lawrence Summers: The right candidate for next Fed Governor?

As one of the top candidates to lead the Fed in 2014, Lawrence Summers brings with him an unrivalled track record, having served as Chief Economist to the World Bank and Secretary of the Treasury under President Bill Clinton. Summers has been part of the academic elite his whole life, having studied at MIT and Harvard. He later became one of Harvard’s youngest tenured professors before serving as the school’s president in 2001. Summers has been described by many as a brilliant economist, having emerged as a key decision-maker for the Obama administration. His tenure as Director of the White House National Economic Council has attracted both criticism and praise, making him one of the more controversial candidates for the Fed’s leadership.

Among Summers’ most controversial matters is his support for the abolition of Glass-Steagall, which brought about greater deregulation in the financial industry. The abolition of Glass-Steagall removed the separation between investment banks and commercial banks, which increased the propensity of risky investments. Many market participants, ranging from analysts to investors and up to policymakers, have blamed deregulation for the financial market’s growing volatility.

Perhaps less controversially, Summers believes monetary policy plays a big role in stabilizing the economy. Like Janet Yellen, another hopeful for the governorship of the Fed, Summers believes in a discretionary approach to monetary policy that gives central bankers wide latitude in reaching their decisions. In other words, central bankers shouldn’t be tied to specific inflation or unemployment targets when reaching a decision about interest rates.

Despite the controversy, Summers’ intellectual and creative ability has been cited as one of his strongest attributes, one that would make him suitable in a leadership role. But the unfortunate reality for Summers is he has been painted as one of the key figures behind the 2008 financial crisis, largely due to his role in weakening financial regulation. Whether or not this hurts his nomination is yet to be seen. It is widely expected President Barack Obama will announce the next Chairman of the Federal Reserve in September.

Share on StockTwits

Iron FX 1.11156/1.11128 2.8
XM Markets 1.09948/1.09928 2
FxPro 1.10184/1.10171 1.3
FXCM 1.13943/1.13912 3.1