Discuss this and more
with the former U.S.
Treasury secretary, Larry Summers.
Mr.
Secretary, thanks so much for joining us.
Did the Fed get it right today
with this quarter point hike?
I think of the
difficult choices there were.
This was the right choice.
If the Fed had stopped raising
interest rates
when it clearly had had a plan
to increase interest rates,
I think the risk would have been
that it was signaling panic and alarm.
And if the Fed was that alarmed,
the market
and everyone else would be as well.
So I think carrying through
was the broadly right thing to do.
That was what the market expected
the Fed to do,
and I think it was appropriate.
I think the Fed is right to be signaling
enormous uncertainty going forward.
I actually think
there are two possible paths.
One is that there's going to be
some real durability
in these banking problems and the economy
is going to turn down.
The other is that this will be weathered
and very much contained.
And what the Fed's going to need to do
going forward
is going to depend
on which of those paths we end up
on, which I don't think anybody can know.
I think the Fed was right to signal
enormous uncertainty.
I probably would have allowed more room
for concern about inflation
and left the door
a bit more open to multiple rate hikes,
given the strength of the recent
inflation data
than the Fed did in their statement.
But it's a very close
call, and I think what they did
was entirely, entirely reasonable.
A lot of is going to depend upon how
the regulatory authorities and the bank
insurance authorities
deal with the remaining bank problem
out there and what happens
in the banking system.
I don't know if you were watching,
but Democratic Senator
Elizabeth Warren of Massachusetts,
this says Jerome Powell,
the Federal Reserve chair,
is doing what she calls a terrible job.
Watch what she told our Jake TAPPER
just a little while ago.
He has spent five years
weakening regulations
over these multibillion dollar banks.
I predicted
five years ago
the consequence of that kind of weakening
would be that we would see these banks
load up on risk, build
their short term profits,
give themselves ginormous up
bonuses and big salaries,
and then some of those
banks will explode.
And that is exactly what has happened.
On share panels,
what she says Powell
shouldn't be chairman
of the Federal Reserve.
Do you have concerns, Mr.
Secretary, with his leadership?
No, I
think he is a appropriate
Fed Fed chair.
I have disagreed with Secretary Warren
on many Senator
Warren on many aspects of regulation.
But I think she has
she is on strong grounds in criticizing
the Fed's oversight of Silicon
Valley Bank
that was not directly Chairman
Powell's responsibility.
And I don't think it was largely
a matter of broad policies.
It was
a failure of supervision on the ground
when a bank has no chief risk officer
for nine months
during a highly risky period
where its deposit
rates have nearly doubled in size.
The authorities
are supposed to do something
and they didn't
see what were actually quite obvious
risks in that institution.
And I think there
needs to be very careful investigation
of the individuals
who bore responsibility
directly for the supervision of the bank
and those who supervise them.
I do think it's an old issue.
And, you know,
you and I have known each other
a long time, Wolf.
I'm not
usually on the populist side of things.
But I have to say, I don't get
why are president of Silicon Valley banks
should be on the board of the
San Francisco Fed.
And I don't get why such a person
should be permitted
to stay on the board
of the San
Francisco Fed after the San Francisco
Fed is involved in giving his bank
very substantial warnings.
So I think that needs to be looked at.
I think it's
somebody not doing their job right.
When the Fed does stress tests
and the stress tests,
don't consider a scenario
of rising interest rates.
God knows in the spring of 2022,
it was obvious
that that was the major
risk for the economy,
but not according to the stress tests
the Fed was using.
That actually,
I think, is the more telling point.
Yes, it's true.
Senator Warren is right.
That legislation that exempted
smaller banks
like Silicon Valley Bank
from the stress
tests was bad legislation.
But even if it had been subject
to the stress tests,
the scenario that got them isn't
part of the stress testing system.
So I think there is a lot
that needs to be
looked at in the way that Fed
the Fed does supervision.
I think that
the person
who's really got that responsible
polity now, Michael Barr, is someone
who has a long tradition, a long history
of being very concerned
about financial access.
And I expect that he will shape things up
and will correct a variety of the errors
that, frankly, were made
by some of ex-president
Trump's appointees who were involved in
financial regulation and supervision.
But no, I think that,
if anything,
Chairman Powell's biggest mistakes
in his most important responsible ability
were that
he didn't
recognize the inflation
threat soon enough
and didn't
move strongly enough
to counter that threat.
And Senator Warren
was even less concerned, and
the very progressives were even less
concerned about inflation than he was.
So I think
those criticisms are quite unfair.
I do think that there is a lot
to worry about in the regulatory area.
All right, Mr.
Secretary, as usual, thank you so much.