Larry Summers Just Answered The Big Question

For the last 24 hours, there's been a meme in the media: Nobody really knows where Larry Summers stands on monetary policy.

That's kind of a big deal, since that what the Fed deals with. It's also important since his presumed chief rival, Janet Yellen, is one of the world's most important monetary policy minds, who has done work that's at the cutting edge of the field.

We wrote about this issue for Summers this morning. Neil Irwin at The Washington Post followed up with it later on.

Well, Summer just answered the question. Kind of.

Jon Hilsenrath at WSJ has a new report that clearly comes from Team Summers.

A close reading of Mr. Summers's columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed's huge bond-buying programs, known as "quantitative easing," but that he also has said he sees few harmful side effects stemming from them.

Mr. Summers's views are of intense interest, both in Washington and on Wall Street, because the next Fed chairman likely will have to manage the exit from extraordinarily easy policies intended to bolster the economy. Investors have become unsettled about any mention of the Fed's pulling back from the bond buying, and both Democrats and Republicans have been vocal about what they would like to see from the next Fed chief.

So Summers, like Yellen, would likely be dovish.

That being said, we kind of lied in the title of this post. Summers answered a question, but he didn't answer the question. Yes, Summers would be dovish, and he wouldn't knee-jerk pullback on QE, but frankly, the QE question is pretty overrated. The "tapering" of large-scale asset purchases is baked in the cake, and will likely start later this year, with an eye towards ending them totally some time next year. It's not that controversial that Summers is skeptical on the efficacy of QE. Even the Fed is done with it. Most of the interesting questions have to do with guidance, and other unconventional tools that the Fed can use while interest rates are near zero.

Here is where Yellen is a leading edge theorist (see here, for example) and Summers is a closed book.

This story from Hilsenrath assures that Summers is no hawk, though as we said this morning, that was always a dubious way to characterize him. But what tools Summers would be inclined to use as Fed Chair remains unclear.