Business World

Monday 22 July 2019

Summers is the bookies' favourite to become new chair of Fed

Betting at Paddy Power suggests former US Treasury Secretary Larry Summers has the inside track in the race to succeed Ben Bernanke as chairman of the Federal Reserve.

Yesterday, the bookie was offering odds of 1-2 for Mr Summers. Fed vice-chair Janet Yellen was priced at 2-1.

Mr Bernanke's term ends in January, and his successor will have to contend with a still-fragile economy while likely also overseeing an end to the Fed's massive bond-buying stimulus programme.

By 2015, if all goes as the Fed now forecasts, the central bank could start raising short-term interest rates in the world's largest economy. Rates have been held near zero since December 2008.

An aggressive advocate of the Fed's super-easy monetary policy, Ms Yellen was the clear favourite earlier in the season to take over from her boss, with odds of 1-5 offered on June 30.

Mr Summers' odds at that point were 8-1.

Things changed in July, when US president Barack Obama was reported to be leaning towards picking Mr Summers, his former economic adviser.

Mr Summers, it was said, proved he could handle himself in a crisis, and may be more trusted by markets.

The revelation surprised economists and Fed watchers, who thought Ms Yellen was the obvious choice.

In Ms Yellen, the Fed's number-two policy-maker, Mr Obama could count on policy continuity. He would also be the first to put a woman at the head of the US central bank.

Mr Summers' detractors have come out in force, with some blaming him for laying the groundwork for the financial crisis by spearheading financial deregulation in the late 1990s.

Others say he had not been a strong enough advocate for fiscal stimulus to pull the economy from its crisis-induced free fall.

Mr Summers' work as a consultant to large financial institutions that he would oversee as Fed chairman has also drawn fire.

But at the bookies, the odds on Ms Yellen, a long-time central banker who Mr Obama barely knows, lengthened while Mr Summers' shortened.

On August 5, a few days after Mr Obama defended Mr Summers at a closed-door meeting with Democratic lawmakers, Ms Yellen dropped behind Mr Summers into second place and has lost ground ever since.

CRACKDOWN

Late last week, Mr Obama said both Mr Summers and Ms Yellen were "highly qualified" candidates, but that he was considering others as well and would decide in the autumn.

At his meeting in late July with House Democrats, Mr Obama mentioned a third candidate, Donald Kohn (70), who retired as Fed vice-chairman in 2010.

Paddy Power is offering Mr Kohn at 18-1 against, putting him in a distant fifth place.

Roger Ferguson (61), the chief executive of retirement fund manager TIAA-CREF who served as Fed vice-chairman for seven years under Alan Greenspan, is the number-three pick, at 12-1. Former US Treasury Secretary Timothy Geithner is number-four, at 16-1.

A crackdown by regulators has put a damper on US domestic betting on the outcome.

Intrade.com, another online betting company that catered to US gamblers and typically ran books on the outcome of races such as that for the Fed chair, shut down in July due to irregu-larities.

Ann Saphir

Irish Independent

Also in Business