During an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers stated that public pressure by progressive members of Congress to nominate a dovish vice chair to the Federal Reserve is “a serious mistake, even by their own lights.” Because doing so will actually “put more inflation premium into interest rates” which is “likely to lead to higher long rates, which means higher mortgage rates for the very people progressives are trying to help.”
Host David Westin asked, “[W]e’re going to have Jay Powell up for testimony for two days before Congress next week. We also have a nomination to come of a new vice chair. [Do] politics necessarily get injected? Already, people are talking about possible candidates for the vice chair position, whether they’re a hawk or a dove, with some of the more [progressive] in Congress saying, let’s get a dove in there.”
Summers responded, “I guess I’d say this, I’d say that the Chairman has an important opportunity when he testifies to reset expectations and to address the growing credibility problems that the Fed has. I think progressives are making a serious mistake, even by their own lights. If there’s a sense that progressive political conviction is guiding the next nomination, and even more if that’s successful in getting a person confirmed, I think there will be very little impact on the next two or three appointments — the next two or three decisions, because the Fed’s going to want to show its independence. The incumbents are going to want to look like they have not been pushed around. A new person’s not going to have [an] immediate impact. So, you won’t affect rates in the short run. But, that sign of politicization will cause issues of medium-term expectation and that will cause the back end of the curve to rise. So, ironically, that kind of political pressure is likely to put more inflation premium into interest rates and likely to lead to higher long rates, which means higher mortgage rates for the very people progressives are trying to help. This is really a very misguided and problematic strategy for progressives, even if one had their judgment that what’s most important is lower rates and to stimulate the economy. So, I hope they’ll back off [of] this kind of public campaign.”
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