Clients ‘Troubled’
Tony Fratto, a U.S. Treasury assistant secretary in the George W. Bush administration and the founder of consultants Hamilton Place Strategies in Washington, said some clients “are troubled at the prospect. Some are just curious and trying to figure out the future.”
“Clients have been asking for about three months whether Summers can be confirmed,” he said.
While former Treasury Secretary Summers, 58, has no record making monetary policy, he expressed skepticism about the effectiveness of QE in an April conference hosted by Drobny Global Advisors.
By contrast, Yellen’s views are well known after more than a decade at the central bank. Yellen, 67, was a Fed governor from 1994 to 1997, president of the San Francisco Fed from 2004 to 2010 and vice chairman since 2010.
She has been an architect of the current stimulus campaign and Fed communication strategy and has never dissented from a monetary policy decision under Bernanke.
“We know with Yellen that she will continue with their current program,” Memani said. “With Summers it’s a lot less certain.”
Paring Purchases
Bernanke has assured investors that paring purchases doesn’t signal an increase in the benchmark interest rate, which policy makers forecast will remain near zero until 2015. As the Fed begins to move away from bond purchases to boost the economy, it will rely on more on guidance on the future path of interest rates as a policy tool.
The increase in borrowing costs “serves to weaken the Fed’s message when there’s a question about continuity, just when the Fed is moving to rely more on that particular tool” of rate guidance, said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York.