Fed chairmen have to be independent, ready to make tough decisions. So what would have President Obama said to Larry Summers about higher interest rates and slower money growth in the next couple of years? Would Summers have had the independence to pull it off?
We’ll never know. But we do know that stocks markets rallied big time on the Summers withdrawal. Markets think Janet Yellen will be an easy-money dove and that Summers would have been the tight-money hawk. But stocks have no way of knowing this, because neither Yellen nor Summers have suggested a rules-based monetary policy that will prevent serious financial crises while stabilizing inflation and maximizing growth.