Larry Summers pulls out of US Federal Reserve race

  • 16 September 2013
  • From the section Business
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Larry Summers

Former US Treasury Secretary Larry Summers has withdrawn from the race to be the new head of the US central bank.

He was among the front-runners to succeed Ben Bernanke as head of the Federal Reserve, one of the most powerful jobs in the US.

In a letter to President Obama, Mr Summers said any confirmation process for him was likely to be "acrimonious".

Mr Summers was thought to be the candidate favoured by the president, but he was opposed by other Democrats.

He was Treasury Secretary during the Clinton administration from 1999 to 2001 and had also been chief economist of the World Bank from 1991 to 1993.

He served President Obama as director of the National Economic Council in 2009 and 2010.

As Treasury Secretary he was in favour of deregulation, which some people consider gives him part-responsibility for the problems in the financial sector that led to the 2008 financial crisis.

Other members of the Democratic Party oppose him because of remarks he made when he was president of Harvard University.

At a conference in 2005 he suggested that women had less innate ability in maths and science than men.

In his letter on Monday he said: "I have 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.''

Image caption Janet Yellen is among the front-runners for the top job at the Federal Reserve

'Expertise, wisdom and leadership'

Mr Obama said he had accepted Mr Summers' decision.

The president said in a statement: "Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today."

Mr Obama added that he would always be grateful to Mr Summers for his "tireless work and service on behalf of his country" and looked forward to continuing to seek his guidance and counsel in the future.

Mr Summers' withdrawal makes it more likely that current Federal Reserve vice-chairman Janet Yellen will get the top job. She would be the first woman in the role.

Media captionFormer White House adviser Pippa Malmgren considers the front-runners to take over

Another possible candidate is former Federal Reserve vice-chairman Donald Kohn.

Former Treasury Secretary Timothy Geithner has said he does not want the top job at the central bank, although it is rumoured in Washington that the president may try to persuade him to reconsider.

Economic stimulus

The chairman of the board of the Federal Reserve is always a powerful position, but the new appointee will be taking over at a particularly sensitive time.

Ben Bernanke will be standing down at the end of January 2014, just as the central bank is starting to cut back on its economic stimulus measures.

The Federal Reserve's interest rate-setting committee is meeting this week and is expected to announce how it will scale back these measures.

At the moment it is buying $85bn (£53bn) of bonds a month as part of the quantitative easing programme, which is designed to pump money into the financial markets in an attempt to reduce the cost of borrowing.

Mr Summers was seen as being in favour of scaling back the programme more quickly than the other candidates.

"It had been perceived that if Summers had come into the Fed, he'd have been more likely to remove US policy accommodation quicker," said Sam Tuck, a currency strategist at ANZ.

"Now that he's withdrawn his name there's speculation that policy accommodation withdrawal will take longer."

Shares rise

There has been considerable market response to the news of Mr Summers' withdrawal and the view that it is likely to mean US interest rates will stay lower for longer.

By mid-morning, the UK's FTSE 100 share index was up 0.8%, the Dax index in Frankfurt was up 1.2% and the Cac 40 in Paris was 0.9% higher.

Emerging economies have been among the beneficiaries of quantitative easing because some of the money pumped into the US system has been spent on government bonds from other countries.

As a result, the main indexes in the stock markets in India, Thailand and the Philippines all rose nearly 2%.

In the currency markets, the dollar fell against the euro, the yen and the pound.

The price of British government bonds rose, cutting their yields.

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