Do Larry Summers and Janet Yellen Disagree About Monetary Policy?

Rumors are flying in DC that apparent front-runner as Federal Reserve Chairman Janet Yellen has been left in the dust by Lawrence Summers. My view continues to be that passing over Yellen for Summers makes no real sense, but it’s worth emphasizing that as far as we know there’s no real daylight between Yellen and Summers and monetary policy.

Yellen is currently vice chair of the Fed, so it seems reasonable to assume that she’s broadly comfortable for the course that’s currently being charted. Summers has said very little about monetary policy over the years, but at a recent Wall Street Journal event he spoke about his preference for fiscal stimulus over additional monetary stimulus by hinting vaguely at the idea that monetary stimulus risks bubbles and other problems. This is very similar to the vague concerns you hear from people at the Fed currently as an explanation of why they don’t accelerate monetary stimulus despite low inflation. In other words, Sumemrs—like Yellen—seems broadly comfortable with the current course of monetary policy.

The one big difference between them that’s clear is that though both are Democrats, Summers is really tied in with the Democratic Party. He’s served the last two presidents at high levels, and the Obama administration is staffed by lots of people he’d work with. You might see that as biasing Summers toward expansionary policy through 2016 since helping Hillary Clinton win the election is a way of helping personal friends and colleagues of Summers’ continue running national economic policy. On the other hand, you might see Summers’ closeness to the White House as biasing him toward tight monetary policy in order to prove his independence.