Senator Elizabeth Warren, one of four banking committee members who helped force Summers, a former Citigroup adviser, to withdraw from the race on Sunday, said the development should give President Barack Obama a chance to rethink his strategy, which has been criticised for being too accommodating toward banking interests.
“I don’t think it’s any secret that Larry was not my first choice,” said Warren. “I think the president is taking his time, he’s thinking through this and we’re having a good and thoughtful discussion, which is a good thing to have in Washington.”
Summers was treasury secretary under President Clinton. He is seen by his opponents as being heavily implicated in the lax regulatory environment which helped caused the banking crash.
On the fifth anniversay of the collapse of Lehman Brothers, the race to succeed the current Fed chairman, Ben Bernanke, has become a symbol of the political battle in Washington over how to rein in the power of financial interests. Yellen, who is currently vice chair of the Federal Reserve, is seen as much less close to Wall Street than Summers. She is also favoured by those who would like to see more women in Obama’s inner circle.
“Janet Yellen, I hope, will make a terrific Federal Reserve chair,” said Warren, in an interview on MSNBC. “I hope she’s nominated. She has great experience, she has great judgment. I think she would make a terrific federal reserve chair. The president will make his decision but I hope that happens.”
Paradoxically, US financial markets rose on the news that Summers had withdrawn his candidacy; Summers had been expected to oppose fresh economic stimulus if he made it through the Senate confirmation process.
Dan Greenhaus, chief global strategist at broker BTIG, said investors were betting that Yellen would look more favorably on the continuation of the Fed’s massive financial stimulus programme, known as quantitative easing (QE). Yellen has backed Bernanke in his plans to extend the $85bn-a-month bond-buying programme that is aimed at stimulating the economy and keeping interest rates down. Summers had been perceived as being more critical.
The Fed meets this week and Bernanke will hold a press conference on Wednesday, at which he is expected to be pressed on his own plans, the future of QE and likely successors.
“The irony is that Summers is not being dropped because he was in favor of tightening monetary policy,” said Greenhaus. “He is being dropped because of his perceived bias towards deregulation. The funny thing is we don’t know where Yellen stands on bank regulatory policy and that’s going to be just as important as monetary policy in the coming years.”
Liberals in Washington welcomed Summers’ shock departure from the race, which is the latest congressional setback for an Obama administration that is rapidly losing support even from its own party.
“Larry Summers’ past decisions to deregulate Wall Street and do the bidding of corporate America have made the lives of millions of Americans more acrimonious. He would have been an awful Fed chair,” said Adam Green, co-founder of the Progressive Change Campaign Committee. “President Obama should appoint someone to lead the Fed who has not accepted millions in payments from Wall Street, and who will prioritize an economy that works for the little guy above further enrichment for the big guy.”
Writing to Obama to explain his decision to pull out, Summers acknowledged that he would have faced a bumpy ride from the Senate.
“This is a complex moment in our national life,” he wrote. “I have reluctantly concluded than any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.
“I look forward to continuing to support your efforts to strengthen our national economy by creating a broad-based prosperity and to reform our financial system so that no president ever again faces what you and your economic team faced upon taking office in 2009.”
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