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Tom Holland

At some point in the next few months, US President Barack Obama will make a decision that's going to affect everyone in Hong Kong. He is going to pick a new chairman for America's de facto central bank, the Federal Reserve.
In June, Obama revealed that current chairman Ben Bernanke will step down next January after eight eventful years in the job.
"He's already stayed a lot longer than he wanted or he was supposed to," Obama said.
The president has already drawn up a short list of "extraordinarily qualified candidates", and will announce his decision in the coming months.
His choice matters deeply to Hong Kong. Because of our currency peg, which for the last 30 years has locked the exchange rate of the Hong Kong dollar to the US dollar, officials here have no control over local monetary policy.
Instead, liquidity conditions in Hong Kong mirror those in the US, and our interest rates automatically track benchmark rates set by the Fed.
That means for at least the next four years the price local companies pay for credit, the interest we receive on our bank deposits, and the amount we pay each month for our mortgages will all be decided by Obama's new appointee and his colleagues at the Fed.
Eight years ago, when Bernanke emerged as the front runner to succeed Alan Greenspan as Fed chairman, this column argued that his relaxed attitude to the swelling US current account deficit meant he would be inclined to keep US interest rates relatively low.
"In Hong Kong, persistently low rates would encourage another property boom," the column noted.
The crucial question today is the new appointee's attitude to quantitative easing. A chairman who believes the Fed's ultra-loose monetary policy is successfully reducing US unemployment without fuelling inflation will be happy to continue printing money, supporting Hong Kong property prices at their near-record levels.
On the other hand, a chairman worried about the distorting effects of quantitative easing and concerned about the Fed's ballooning balance sheet will be more likely to wind the policy down early and raise interest rates, with nasty consequences for Hong Kong home prices.
So far attention has focused on two candidates: current Fed vice-chairman Janet Yellen, and former Treasury Secretary and White House adviser Larry Summers.
According to independent London-based Fed-watcher Said DeSaque, Yellen "appears to be the natural successor to Chairman Bernanke". A believer in the effectiveness of quantitative easing, she has strong support from Democrat members of the Senate banking committee, which must approve the nomination.
In contrast, Summers is sceptical about the merits of the latest round of quantitative easing, arguing it has done little to create jobs. Instead, it has simply inflated asset markets, benefiting the rich rather than the unemployed.
According to US media, Summers enjoys the backing of two other former Democrat Treasury secretaries, Robert Rubin and Timothy Geithner, and is Obama's favoured candidate. Reports say he all but has the job in the bag.
The reports may be premature. Summers is a divisive figure. He had a rocky spell as president of Harvard University between 2001 and 2006, outraging liberal opinion with remarks implying that women have less aptitude than men for science and engineering.
More recently, he has drawn fire for his financial dealings, and been criticised for his associations with banks and hedge funds.
As a result, getting Summers approved as Fed chairman may just be a battle Obama doesn't want to fight, which would leave Yellen the clear favourite.
Either way, the implications for Hong Kong will be profound.
tom.holland@scmp.com


Fight over Fed has profound implications for Hong Kong

Larry Summers (left) is sceptical about the merits of the latest round of quantitative easing. Janet Yellen (right) is more sanguine.

Business

Opinion

Janet Yellen, a quantitative easing believer, likely to sustain HK property prices while Larry Summers may choose to end the stimulus sooner


At some point in the next few months, US President Barack Obama will make a decision that's going to affect everyone in Hong Kong. He is going to pick a new chairman for America's de facto central bank, the Federal Reserve.


Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Monitor

.css-1m2rp1p{color:#34b8b5;}Monitor | Fight over Fed has profound implications for Hong Kong

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Janet Yellen, a quantitative easing believer, likely to sustain HK property prices while Larry Summers may choose to end the stimulus sooner

Monitor | Fight over Fed has profound implications for Hong Kong

Janet Yellen, a quantitative easing believer, likely to sustain HK property prices while Larry Summers may choose to end the stimulus sooner