Yellen as Americans' favorite shows Fed is captured by democracy
Binder said Summers's history as an advocate of deregulation was the key to his demise, given the public's disdain for bank bailouts and concern that the problem of so- called too-big-to-fail institutions hasn't been resolved, even after the 2010 Dodd-Frank financial-overhaul legislation expanded the Fed's supervisory powers.
When Summers, 58, withdrew, he cited a potentially "acrimonious" confirmation process.
"The hard work was done by a handful of liberal Democrats in the Senate caucus who really, intensely disagreed with his stand on financial regulation," Binder said.
Summers also attracted criticism for remarks he made in 2005 while president of Harvard University hypothesizing that women might lack an "intrinsic aptitude" for science and engineering. The Washington-based National Organization for Women cited Summers's "obnoxious views" as only "part of the problem" in a July 25 statement backing Yellen, who would be the first female chairman.
The unprecedented public debate about who would be the best choice to succeed Bernanke threatened the central bank's independence, according to Richard Fisher, president of the Dallas Fed, who added that the Obama administration botched the nomination process.
"The White House has mishandled this terribly," Fisher said Sept. 23 in response to a question from the audience after giving a speech in San Antonio, Texas. Choosing a new chairman "should not be a public debate," and "we came within an inch of our lives of losing the independence that we have."
The Fed "must never be a political instrument," and the scrutiny of both Summers and Yellen has been "denigrating" for the candidates, Fisher said. The White House should handle future nominations "with more grace."
Fisher has repeatedly cautioned that the Fed's extraordinary stimulus measures risked opening up the central bank to political interference. He dissented twice in 2011 against moves to push down long-term borrowing costs and to keep the benchmark rate near zero for a prolonged period.
The intensity of attention on the selection process reflects dissatisfaction with the state of the economy, Binder said. The Fed is currently failing on both its mandates, with unemployment at 7.3 percent in August — above the 5 percent rate in December 2007 when the recession began — and prices accelerating at a 1.2 percent annual rate, according to the personal-consumption-expenditures price index. The Fed targets inflation of 2 percent.
"So long as the state of the economy remains a public interest, its natural focus is going to be on who leads the Fed," Binder said.
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