Business World

Monday 22 July 2019

Frontrunner for Fed chair Larry Summers dramatically pulls out of race

Influential US economist Larry Summers. Photo: Getty Images
Influential US economist Larry Summers. Photo: Getty Images

LARRY Summers, the apparent frontrunner to succeed Ben Bernanke as the next chairman of the US Federal Reserve, has pulled out of the race in dramatic fashion.

Mr Summers, a former US Treasury Secretary and policy adviser to Barack Obama, on Sunday phoned the US President to notify him that he no longer wanted to be considered for the most powerful role in central banking.

His shock withdrawal appears to place Janet Yellen, Mr Bernanke’s second-in-command, in pole position to win the President’s nomination. Ms Yellen would be the first female leader of the Fed in its 100-year history.

In a letter sent to Mr Obama yesterday, Mr Summers said: “I have 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.”

Although the White House was believed to have favoured his appointment, several Democratic senators opposed nominating Mr Summers due to his history of financial de-regulation.

During his time at the Treasury, Mr Summers repealed parts of the 1933 Glass-Steagall Act, which separated retail and investment banking. The move is criticised by Mr Summers’ opponents as one of the key factors that led to the financial crisis.

Mr Obama paid tribute to his former adviser and said he had accepted his withdrawal.

“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,” the President said.

The dollar fell on the news, with the value of a pound rising from $1.588 to $1.595.

Ms Yellen, who has been vice chairman of the Fed since 2010, is considered a monetary “dove”, more concerned with stimulating output and reducing unemployment than by inflation.

A new chairman is set to be nominated by the President as early as this month and must be approved by the 22-member Senate Banking Committee, 12 of which are currently Democrats. Mr Bernanke’s term expires at the end of January.

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