Have Markets Priced-In Summers as Fed Chairman?

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Sept. 5 (Bloomberg) -- Justin Wolfers, senior fellow at The Brookings Institute, examines market attitude on the possibility of Larry Summers being nominated as Federal reserve Chairman to replace Ben Bernanke. He speaks on Bloomberg Television's "Market Makers."

Agrees with everything either might do.

Thank you very much.

For more on this issue, and the economy in general, let me bring in justin wolfers from the bookings institution.

-- the brookings institution.

I love the city.

Let's focus on the date, the idea that financial markets have passed judgment on the probability of a summers nomination and they are pricing treasury yields higher in anticipation.

Do you buy into that argument?

Not at all.

You can figure out the difference between them in different markets and you can watch how they are trading.

We saw a big shift three weeks ago.

The market believed we had a yellin fed chair and two weeks ago they thought was larry summers.

You can see how the markets responded and they yawned.

As the odds of going up and down, markets seem to be unconcerned.

I don't i the idea that markets don't care who the fed chairman is.

Obama has got what appears to be a list of two or three.

The markets are responding to the differences among the three on the short list.

Essentially, the markets are thinking that way.

If there was a possibility of a dark horse, you could definitely see more attention around that.

That claim is not that the fed chair does not matter.

The claim is what we don't about the existing candidates is sufficiently similar that the markets have not been reacting to the news.

Even if you don't agree with this notion that markets are pricing in a summers nomination, do you agree with the idea that supports it?

It is that given the criticism by summers of quantitative easing specifically as it concerns mortgages would lead him to taper faster than janet yellin?

We just out now.

I know janet and i know larry and i know their friends terry and and you would just be making stuff up.

That's a provocative statement.

Let's talk about what's likely to happen over the next few months.

Whether in the fed meeting in a couple of weeks for the one after that, we are likely to see some commentary if not a decision on what to do about quantitative easing.

What will be a bigger drag on the economy, the fiscal situation or monetary policy?

Overwhelmingly it will be fiscal.

Through the next year, it looks like fiscal holocene will knock 1.5% of gdp.

If we were not cutting wax fiscal policy, we would have a healthy recovery and we are in the midst of a healthy private sector recovery being held back by cuts to government.

How dangerous is the battle looming over the budget and the possibility of government shutdown?

All of these things could happen before the end of this month.

Every year, we set around and fret watching them screw it up and at the last moment, they don't. if you play chicken long enough, maybe we go off a cliff.

You are not a policy analyst, per se.

You are an economist but it can you gauge the odds of that happening?

My friends on the hill poster to politics tell me we should be worried.

By the same token, at this time every year, they tell me we should be very wary.

We've got a history of getting it right.

I think these are games we should not be playing.

I think people in the market should be extremely aware and follow this closely.

Before we go, bill gross of pimco wrote today that there is a real danger that we have allowed the credit -- that the credit creation cycle is running out because people are far too hooked on this idea of monetary support in the federal reserve.

Do you agree?

If the economy is second lowers interest rates get people to invest, that seems like a useful cure.

Anything about that is too complicated for my taste.

If the fed pulls back?

This is a bad time for fiscal or monetary timing.

This text has been automatically generated. It may not be 100% accurate.


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