President Barack Obama rejected the notion that Lawrence Summers is the front-runner to replace Federal Reserve Chairmen Ben S. Bernanke, explaining that he has defended his former National Economic Council director as an act of loyalty.
“The perception that Mr. Summers might have an inside track simply had to do with a bunch of attacks that I was hearing on Mr. Summers pre-emptively, which is sort of a standard Washington exercise that I don’t like,” Obama said at a White House news conference yesterday. “I tend to defend folks who I think have done a good job and don’t deserve attacks.”
The former Treasury secretary is one of a “range of outstanding candidates” to head lead the central bank, including Fed Vice Chairman Janet Yellen, the president said.
While Obama didn’t express a preference between Summers and Yellen, calling them both “outstanding candidates,” he did elaborate on the need for the next Fed chairman to combat inflation. The president warned of the potential dangers of “artificial bubbles” and reiterated his requirement that the next chairman work to lower unemployment.
“My main criteria for the Fed Reserve chairman is somebody who understands they’ve got a dual mandate,” he said. “A critical part of the job is making sure that we keep inflation in check, that our monetary policy is sound, that the dollar is sound.”
Besides Summers, 58, and Yellen, 66, Obama said he had a “couple” more candidates under consideration. Last week, he told House lawmakers that he was also considering former Fed Vice Chairman Donald Kohn, 70, for the job, bringing to three the names of publicly known candidates.
It’s hard to make a case that Summers, Yellen or Kohn “clearly has a stronger reputation than the others” on inflation, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Proponents of each individual might make subjective arguments on their favorite’s behalf.’
‘‘Of the three, Yellen is probably seen as the most focused on unemployment issues,” he said. “The common perception would probably be that Summers and Kohn have more experience with the financial bubble issues that the president cited.”
Obama, 52, told House lawmakers last week that Summers was being unfairly criticized. Yesterday, he compared Summers to his National Security Adviser Susan Rice. Obama didn’t nominate her for Secretary of State after a backlash over statements she made following the attacks in Benghazi, Libya, last September.
“When somebody’s worked hard for me and worked hard on behalf of the American people, and I know the quality of those people, and I see him getting slapped around in the press for no reason before they’ve even been nominated for anything, then I want to make sure that somebody’s standing up for them,” Obama said. “I felt the same way when people were attacking Susan Rice before she was nominated for anything.”
Obama ultimately picked former Massachusetts Senator John Kerry instead of Rice as the nation’s top diplomat and moved her to a post that doesn’t require Senate confirmation.
For the Fed position, Obama said he’ll make a decision “in the fall” on a replacement for Bernanke, 59, whose term expires on Jan. 31.
Yellen has been the Fed vice chairman since October 2010. Summers, who was Treasury secretary from July 1999 to January 2001, returned to government in 2009 to serve as National Economic Council director during Obama’s first term.
“Obama is on a sticky wicket at this stage,” said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore who worked at the Fed’s division of monetary affairs from 2004 until 2008. “If he appoints Summers, he upsets many people in his party. If he appoints Yellen, he seems to have backed down under pressure.”
“So he is surely at least thinking about other alternatives, and not just Don Kohn,” he said. “One way out might be to persuade Ben Bernanke to stay for another term after all.”
After warning about the need to preserve a strong dollar, Obama elaborated on the other aspect of the Fed’s dual mandate.
“If you look at the biggest challenges we have, the challenge is not inflation,” he said. “The challenge is we’ve still got too many people out of work, too many long-term unemployed, too much slack in -- in the economy, and we’re not growing as fast as we should.”
The Fed has been missing on both targets of its twin goals. The personal consumption expenditures index -- the Fed’s preferred gauge of inflation -- rose 1.3 percent in June from a year earlier, below the central bank’s 2 percent goal. Unemployment, at 7.4 percent in July, has been above 7 percent since November 2008.
Employers added 162,000 workers in July, the least in four months and following a revised 188,000 rise in June that was less than initially estimated. While the unemployment rate declined to 7.4 percent from 7.6 percent, policy makers have expressed concern that discouraged workers were dropping out of the labor force and others have been unable to find work for an extended period.
The labor market is “far from satisfactory, as the unemployment rate remains well above its longer-run normal level, and rates of underemployment and long- term unemployment are still much too high,” Bernanke told Congress July 17.
While Bernanke hasn’t said whether he’d be willing to stay for a third term, Obama indicated in a June interview with Charlie Rose that the Fed chief had stayed in the post “longer than he wanted.”