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Former Treasury Secretary Lawrence Summers warned against incorporating any presidential sway over the setting of U.S. monetary policy, saying it would only end up damaging the economy over time.<\/p>\n
\u201cHaving politicians involved is a fool\u2019s game,\u201d Summers said on Bloomberg Television\u2019s\u00a0Wall Street Week<\/em>\u00a0with David Westin Friday. \u201cYou end up with higher inflation and a weaker economy.\u201d<\/p>\n Summers spoke a day after Republican presidential nominee Donald Trump said he felt strongly that the president should have some \u201csay\u201d in Federal Reserve policy setting. The former president, who urged Chair Jerome Powell to ease policy when he was in office, said that policymaking is a \u201cgut feeling\u201d and that he himself had \u201ca better instinct in many cases\u201d than the Fed chair and other top officials.<\/p>\n \u201cI sure was appalled at how bad an idea it was,\u201d Summers, a Harvard University professor and paid contributor to Bloomberg TV, said of Trump\u2019s suggestion. \u201cA president\u2019s got a lot of things to do at any given moment and is actually much less close to the economy\u201d than the 19 Fed board members and presidents who focus on constantly scrutinizing every economic statistic, he said.<\/p>\n The Trump campaign didn\u2019t immediately respond to a request for comment.<\/p>\n Summers highlighted that countries across the globe have over time endowed their central banks with independence in recognition that there\u2019s \u201ca profound conflict of interest\u201d for politicians with regard to monetary policy. Political office holders will \u201calways be tempted to print more money, lower interest rates \u2014 hit the accelerator hard to get a boost to the economy,\u201d he said.<\/p>\n Such pressure raises the people\u2019s expectations for inflation, pushing up longer-term interest rates, said Summers, who served in top economic positions in the Democratic administrations of Bill Clinton and Barack Obama. \u201cYou get more inflation and you don\u2019t get any substantial output gain.\u201d<\/p>\n Summers cited the example of former President Richard Nixon, who famously pushed then-Fed Chair Arthur Burns into easier monetary policy in the early 1970s, triggering a costly inflationary\u00a0boom-bust cycle<\/a>. He also referenced \u201cinnumerable\u201d cases in Latin America \u2014 which in more recent years in many economies has shifted toward\u00a0independent central banks<\/a>\u00a0that tamped down inflation.<\/p>\n As for the Fed\u2019s current policy call, the former Treasury chief said that, given how volatility in markets and the selloff in stocks has eased since Monday\u2019s turmoil, \u201con current facts,\u201d any emergency rate cut would be unwarranted.<\/p>\n \u201cAn emergency response would be lurching, panic, overheated, counterproductive\u201d he said. Still, \u201cit may be that a 50 basis-point cut is appropriate\u201d at the September policy meeting, he said.\u00a0<\/p>\n Powell said last week, before the sharp slide in equities that culminated in Monday\u2019s 3% plunge in the S&P 500, a half-percentage point reduction was \u201cnot something we\u2019re thinking about right now.\u201d<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n