Larry Summers Withdraws, Probable Boost for Equities

Larry Summers

Larry Summers

In a letter addressed to U.S. President Barack Obama on September 15th, Lawrence “Larry” Summers withdrew his name from consideration to succeed Federal Reserve Chairman Ben Bernanke, whose term is to end on January 31st. Mr Summers served in both the Clinton and Obama administrations.

In the letter, Mr Summers cites as his reason for withdrawing an “acrimonious” confirmation process that “would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.”

Money managers and economists perceive that Yellen would be more dovish than Summers.

The withdrawal comes after heated and vocal protests by senate democrats against his possible nomination. Separately, a group of 350 economists were against a nomination for Mr Summers, sending a letter to President Obama that urged him to consider Janet Yellen instead.

Economists and media outlets were more concerned with his perceived role in the most recent financial crises. They were especially critical of his high-praise of the repeal of certain provisions of the Glass-Steagall Act in 1999 and for his pre-crisis success in helping to prevent increased regulation of the derivatives markets.

Janet Yellen, a likely nominee, is professor emeritus at the University of California, Berkeley. She served as the president and CEO of the Federal Reserve Bank of San Francisco from June 14, 2004 until 2010. If nominated and confirmed, she is expected to continue policies similar to those of Ben Bernanke. This may be good news for Wall Street. A CNBC September Fed Survey taken last week revealed Wall Street professionals in a 5-to-1 margin preferred Janet Yellen over Larry Summers for the Fed post. Money managers and economists perceive that Yellen would be more dovish than Summers. A Yellen nomination would be a continuation of easy money policy, thus keeping equity markets afloat.

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