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U.S. Opinions: Chicago

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At Fed: Summers-lite?

From an editorial Thursday in the Chicago Tribune:

The Federal Reserve on Wednesday surprised Wall Street with a nice present for traders: The central bank will keep its economic stimulus program going at the current rate of $85 billion a month. No so-called tapering after all. Party on.

We’ve urged the Fed to cut back its stimulus. Today’s stimulus will have to be clawed back tomorrow, as we’ll explain below. And it has become obvious that the present policy is not working: The Fed keeps pouring on stimulus. The prime results: sluggish growth and rising interest rates.

Flooding the economy with money in the (mostly vain) hope of rekindling demand and growth will be Fed Chair Ben Bernanke’s legacy. The nasty long-term effects will be someone else’s problem. Bernanke’s term expires Jan. 31, and after his decision Wednesday to do more of the same, we’ll welcome new leadership.

But who? The leading candidate, ex-Treasury Secretary Lawrence Summers, has taken himself out of the running. We hope that whoever gets the nod will be nothing like Summers, except for one essential quality.

Summers had a ton of baggage that would have made it difficult for his nomination to clear the Senate. As a key adviser during President Barack Obama’s first term, he was a cheerleader for the fiscal stimulus, the Affordable Care Act, Dodd-Frank financial reform and the auto-industry bailout. That record alone was reason enough for many Republican senators to hit the reject button. Add his arrogant personality, and Summers had Democrats, too, poised to oppose him.

Summers, though, has a record of telling it like he sees it. He has the gravitas to tell Wall Street, “No more punch bowl.”

Taking away the punch bowl is Fed-speak for tightening monetary supply. The Fed has been printing money like mad. In the early days of the financial collapse, that policy made sense: The banking system might not have survived had the Fed failed to act aggressively.

Yet the Fed has kept up the stimulus long after the economy stabilized. The decision to keep purchasing $85 billion in securities every month puts the nation at risk of inflation in the future, and raises the specter of a bubble in stock prices, housing and other assets that have benefited from years of easy money.

Whoever succeeds Bernanke has the task of unwinding what he has wrought.

Much as Obama favors government stimulus, we hope he nominates a Fed chairman who can handle the job that comes next. That’s economic stewardship, yes, but it’s also taking away the punch bowl without eroding confidence in America’s future. That constriction won’t be popular. Whomever Obama chooses, he or she had better be a leader.

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