LARRY Summers, the leading US economist, last night spectacularly withdrew from the race to become the next chairman of the Federal Reserve. The move sent shockwaves through the financial markets, pushing down the dollar.
Summers had been widely seen as President Barack Obama’s likely favourite, but had recently come under intense criticism, with over 400 US economists signing a letter endorsing a rival candidate, Fed vice chairwoman Janet Yellen.
In a letter to President Barack Obama last night, Summers wrote: “This is a complex moment in our national life. I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration, or ultimately, the interests of the nation’s ongoing recovery.”
Obama lauded Summers’ “expertise, wisdom, and leadership” as Treasury Secretary during the financial crisis. Only two days ago, Summers stepped down from his role as a Citigroup consultant because he was under consideration for the job, according to a spokesperson for the bank.
Several democratic party senators have expressed support for Yellen or doubts about Summers, including members of the banking committee. In the US, the Senate must approve candidates for the Fed chairmanship.
Summers has also suffered from political unpopularity, in part due to his role in advocating financial deregulation during a period as deputy treasury secretary under Bill Clinton.
Donald Kohn and Roger Ferguson, both former Fed vice chairmen, are potential dark horses in the race. Timothy Geithner, another former treasury secretary, is also a possible candidate. Current chairman Ben Bernanke has indicated that he does not wish to serve another term.
The US dollar slipped below 99 Japanese yen after the announcement. Summers has been touted as less likely to favour monetary easing than Yellen, suggesting that the Fed’s policies in the future are now more likely to weaken the dollar. S&P 500 futures surged upward by more than one per cent to 1,725.05 after markets opened, hitting a new all-time high. Gold also rose, up to around $1,326.9 per ounce.