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Obama's last days of Summers

Economist Larry Summers has pulled out of the race to become chairman of the US Federal Reserve.

by Emma Haslett
Last Updated: 09 Oct 2013
It would have been a shame to let the fifth anniversary of the collapse of Lehman Brothers go by without a suitable level of drama in the financial markets.

The requisite performance was provided by economist Lawrence ‘Larry’ Summers, who last night bowed out of a months-long ‘will-he-won’t-he’ drama about whether he will take over the chairmanship of the US Federal Reserve.

In a letter to President Obama last night, he said he had ‘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 economic recovery’.

Summers has been widely credited as Obama’s favourite candidate for the 'third-most powerful position in America' (in a statement this morning, the President said the former treasury secretary had been a ‘critical member of my team as we faced down the worst economic crisis since the Great Depression’), but he is far from universally popular.

He’s been accused of sexism after he said biological differences between men and women might account for women’s lack of success in maths and science. And investors aren’t great fans: following the announcement, global stocks are trading at a five-year high. And an erroneous report last week which suggested he’d secured the job caused gold prices – which are already pretty shaky – to drop by 1%. Not exactly a glowing reception…

To be fair, despite Obama’s enthusiasm, he has rather been stringing Summers along: he was mooted as the frontrunner for the job almost since incumbent Ben Bernanke confirmed he would step down after his term as chairman ends. Since then, Summers has been the subject of increasingly feverish speculation.

His exit leaves Janet Yellen as the frontrunner for the job. The Fed’s current vice chairwoman has huge support among economists: a letter supporting her was signed by 400 top names last week. Obama, though, is said to be ‘annoyed’ by the amount of support she’s received.

Among the other candidates are Donald Kohn – also a former vice chairman; Tim Geithner, the former US Treasury secretary (although he’s reportedly not interested); and Roger Ferguson, who was on the Fed between 1997 and 2006. An outside option would be Stanley Fischer, an American who recently stepped down as governor of the Bank of Israel.

Whoever takes the reins will at least have the first few months of their tenure mapped out for them: in June Bernanke took the unusual step of hinting that the Fed would soon begin reining in its quantitative easing programme. As a result, investors have taken money out of emerging economies and ploughed them back into the US, meaning almost as soon as they take office, the new candidate’s decisions will begin affecting the US’ tentative recovery. No pressure….

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