Larry Summers lost out to Janet Yellen in the race to become Federal Reserve chair, but the former Treasury Secretary is doing his best to steer policy from the sidelines.
In a series of tweets Wednesday morning—just hours before Yellen will announce the FOMC’s latest decision on where to set interest rates—Summers blasted the idea floated by analysts (and hinted at by some Fed officials) that the Fed should move to raise interest rates on Wednesday. In his tweet storm, Summers touched on several indicators to make his case for keeping rates where they are, arguing that the labor market and the overall economy are weaker than other data points, like the unemployment rate, might suggest.
There are many reasons, each of which would be reason enough alone, for the Fed not to raise rates today 1/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should not raise rate because total hours worked in US are flat to down over last 6 months 2/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should not raise rates because inflation expectations are falling not rising 3/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should not raise rates because in the 8 year of recovery it should be targeting inflation above 2% so inflation averages 2%. 4/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should not raise rates because it lacks the tools to respond if a downturn comes 5/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should not raise rates because it will come as a shock at a fragile moment 6/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
Fed should not raise rates b/ the economy is sign. Weaker & inflation expectations weaker than when it erred (judged expost) last Dec. 7/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
Fed should get off the idea credibility requires raising rates now, Dec or at any point b4 inflation expectations are accelerating. 8/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
There are much better ways than rate increases for dealing with any concerns about bubbles 9/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should take on board that with the economy so slow over the last 3 quarters rates may not be below neutral now. 10/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
The Fed should take on board that with the economy so slow over the last 3 quarters rates may not be below neutral now. 10/11
— Lawrence H. Summers (@LHSummers) September 21, 2016
It’s more than a little ironic that Summers—who was reportedly President Obama’s first choice for the Fed Chair—ultimately lost out to Yellen after progressive groups pressured Obama to pass him over because of his supposed centrism and deference to Wall Street. Now, after Janet Yellen’s fairly hawkish speech last month at Jackson Hole, it’s Summers who is the progressive torch bearer, arguing that the Fed should focus more on bringing down unemployment and less on keeping inflation low.
To be sure, Yellen and Summers are in much different positions. Yellen must forge consensus among FOMC members who hold a wide range of views, and so the public pronouncements she makes might not be completely reflective of the views she espouses in private. Summers has no such restrictions, and is free to make a full-throated defense of monetary stimulus.
In any case, most economists and the futures markets are predicting that the Fed will ultimately keep rates where they are, despite the fact that previous projections from the Fed show members expecting two or more rate hikes this year. Time is running out in 2016 for the Fed to raise rates even once, let alone twice, though FOMC members may take the opportunity Wednesday afternoon to revise down their predictions for where rates will be at the end of the year.
The Fed will release its statement at 2pm Wednesday afternoon, followed by Janet Yellen taking questions from the press at 2:30.
