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Sep 16, 2013, 09.25 AM IST | Source: Reuters

Lawrence Summers withdraws from Fed chair consideration

Summers, widely regarded as a brilliant economist and a shrewd and decisive policy-maker, was considered to be the front-runner for the position to replace Bernanke, whose second term expires in January.

Lawrence Summers withdraws from Fed chair consideration

Lawrence Summers, a former top aide to President Barack Obama and Treasury secretary under President Bill Clinton, withdrew on Sunday from consideration to succeed Federal Reserve Chairman Ben Bernanke, after liberal pressure soured his confirmation prospects.

"Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for chairman of the Federal Reserve," Obama said in a statement.

Summers, widely regarded as a brilliant economist and a shrewd and decisive policy-maker, was considered to be the front-runner for the position to replace Bernanke, whose second term expires in January. However, Summers was dogged by controversies including his support for deregulation in the 1990s and comments he made about women's aptitude while president of Harvard.

Word that the president was leaning toward nominating Summers over Fed Vice Chair Janet Yellen elicited an unprecedented amount of controversy for a potential nominee to run the US central bank.

Summers said that the storm pointed to a difficult confirmation process that could hurt the president's economic agenda and the institution, and decided to pull back.

"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," Summers said in a letter to Obama.

Liberal lawmakers and progressive groups were outspoken in their opposition to Summers.

"Larry Summers' past decisions to deregulate Wall Street and do the bidding of corporate America has made the lives of millions of Americans more acrimonious. He would have been an awful Fed Chair," said Adam Green co-founder of Progressive Change Campaign Committee, a political advocacy group, upon hearing the news of Summers' withdrawal.

Four Democratic senators on the Senate Banking Committee were expected to vote against him if he was nominated by the president. The most recent statement of opposition came from Montana Senator Jon Tester on Friday.

"The administration realized that the math wasn't there for a Summers nomination," a Democratic aide on the Senate banking committee said. "Withdrawing was the right choice."

Twenty Senate Democrats signed a letter urging Obama to nominate Yellen, who would be the first-ever woman to lead the U.S. central bank, if nominated and confirmed.

Other candidates

Summers is the second high profile potential nominee to withdraw under pressure in Obama's second term. Susan Rice, now Obama's national security advisor, stepped back from consideration to be secretary of state over controversy surrounding her role in explaining the 2012 attack in Benghazi, Libya, that claimed the lives of four US government employees, including the ambassador.

The demise of Summers' candidacy is another setback for a president whose second term has been plagued by the defeat of gun control legislation, stalled immigration reform measures, and controversies including leaks about widespread eavesdropping by the National Security Agency.

While many viewed the competition to win the nomination to run the central bank as a contest between Summers and Yellen, the president has said he is also thinking about former Fed Vice Chairman Donald Kohn for the job. Observers also see former Vice Chairman Roger Ferguson and former Treasury Secretary Timothy Geithner as candidates, although Geithner has said he does not want the job.

Summers and Yellen both were viewed as highly qualified for the post. However, financial markets believed that Yellen would be slightly more likely to keep the Fed's easy money policies in place for longer than Summers.

Summers' prospects may have been weakened by a reputation for being blunt and combative, and he would have brought a starkly different style to the Fed than that of reserved, soft-spoken Bernanke. At the same time, Summers has the strong loyalty of many people who have worked with him and for him, and who say he is willing to listen to all ideas regardless of the rank of the person offering the view.

Yellen, who has served as the president of the San Francisco Fed bank and chair of the White House Council of Economic Advisors, is seen as more in the mold of the collegial Bernanke.

Summers' appeal to Obama was based principally on the Harvard University economist's working relationship with the president, whom he served as director of the National Economic Council in 2009 and 2010. Summers played a key role in helping formulate the administration's response to the devastating financial crash of 2007-2008 and the recession that ended in 2009.

People who have worked with both say Obama views Summers as a creative thinker and skilled economic crisis manager, although the two are not personal friends.

Some of Summers' fiercest opponents included women's groups upset over a comment he once made suggesting that innate differences between men and women might be a factor in the shortage of women in top science and engineering jobs.

Terry O'Neill, president of the National Organization for Women, said that if the president picked Summers, it would have "repercussions" for Obama's political base.

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