WASHINGTON, September 16, 2013 — With his potential nomination to succeed current Federal Reserve Chairman Ben Bernanke increasingly imperiled, former Treasury Secretary Lawrence Summers has withdrawn his name from consideration. After calling President Obama to discuss his decision, he followed up with a letter formally confirming his intention to withdraw.
In the letter, Summers wrote that he had “reluctantly concluded that 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.”
A renowned economist, Summers built close ties to President Barack Obama when he led the president’s National Economic Council in 2009 and 2010, and he was widely assumed to have been the President’s number one pick for new Fed chief.
But strikes against Summers ranged from his reputation for combativeness to Republican fear of his liberalism and the Democrats’ fear that he would end QE too quickly in their opinion.
In addition, while Summers is known to be a political liberal, he has also continued to champion financial deregulation, a controversial position in an economy that has suffered gravely from precisely that kind of deregulation, which was largely completed in the Clinton Administration’s second term when Summers served as Treasury Secretary.
Fears were also mounting that upon assuming the Chairmanship of the Fed, he would end the Fed’s easy money policy far more quickly than either Bernanke or Janet Yellen, the Fed’s current vice-chair, who has widely been regarded as Summers’ chief rival for the nomination.
Summers’ sudden withdrawal from Fed chair contention followed growing resistance from such critics, including some members of the Senate Banking Committee that would ordinarily be expected to back the President’s likely nominee.
While Republicans have been tepid to strongly negative on a potential Summers nomination, the Wall Street Journal reports “at least four Democrats on the committee had been expected to vote against Mr. Summers, including centrist Democrat Jon Tester of Montana…”
Also a likely Democrat nay-vote: ultra liberal Massachusetts Senator and Native American Elizabeth Warren. She was a member of Harvard University’s Law School Faculty when carefully orchestrated feminist ire—aroused by then-Harvard President Larry Summers’ comments on the paucity of female mathematics and science professors—ignited a successful campaign to force his resignation from the post.
According to a report from Washington Times writer Dave Boyer, Summers had recently “reached out” to Warren for her support, apparently without result. And once again, hard-left feminist organizations have mounted strenuous opposition to his nomination.
Speculation mounted that Summers’ exit from contention might open the door wider for his chief rival, Janet Yellen. The Fed’s vice chair has been attracting wide support from key members of the Democrats’ base. Add to that the opinions of influential Wall Street bigwigs who assume that, as chair, she would be likelier than Summers to taper the Fed’s current QE program more gradually, which might continue to boost stocks.
On the flip side, the President—not know for his enjoyment of any kind of opposition—is said to have become increasingly irritated by the pro-Yellen campaigners.
As a result, other names are now said to be in contention for the Fed nomination including former Fed vice-chair and a current scholar at the liberal Brookings Institution; Stanley Fischer, who has served in posts at the World Bank and the IMF; and TIAA-CREF insurance and pension chief Roger Ferguson, an African-American who has also served as a Fed vice-chair.
Other names bandied about include former Treasury Secretary Timothy Geithner and even Ben Bernanke himself. His current term will formally end on January 31, 2014.
—AP contributed to this report
Stock futures immediately took off on the plus side last night, when Summers’ withdrawal announcement hit the wires, and the market is looking for a powerful initial up-move this morning.
Monday’s pre-market Dow futures are up roughly 160 points as of roughly 9:00 a.m. EDT. S&P 500 futures—generally regarded as a better gauge of broad market sentiment—are up a whopping 17 points, while NASDAQ futures, which tend to reflect tech sentiment, are up a substantial 26.5 points.
Given the relentless approach of the Obamacare health exchange openings, the possibility of an October 1 budget-related Federal government shutdown, the lesser but still very real Middle East threat, and now, the uncertainty of the Federal Reserve’s future direction, markets are likely to remain thinly traded and highly volatile at least through Wednesday. That’s the day when the Fed wraps up its closely watched two-day September meeting which starts tomorrow.
Market watchers and speculators have been expecting more definitive word on the Fed’s “tapering” plans for QE bond purchases. But the opportunity for just such clarity may have become less certain with Summers withdrawal announcement.
For this reason, we’d likely sell clearly profitable positions on the upsurge today and then stay on the sidelines until this market gains a bit more clarity. In general, September and often October are statistically treacherous months in the market. If we ultimately get a big rally off this week’s events, it won’t be too late to enter the sweepstakes a bit late.
On the other hand, getting in and chasing things this morning could be precisely the wrong move if expectations are foiled and things head South in a hurry. Without clarity, cash remains king.
We’ll likely follow with an update on the current trend once the Fed issues its opinion Wednesday afternoon. Until then, keep your powder dry.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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