Former Treasury Secretary Lawrence Summers withdrew from consideration to be chairman of the Federal Reserve, averting a confirmation battle that divided Democrats on one of President Barack Obama’s most important decisions.
“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 recovery.” Summers wrote in a letter dated today to President Barack Obama.
Obama said he accepted Summers’ decision and called his former economic adviser a critical player “as we faced down the worst economic crisis since the Great Depression.” Obama, in his statement, said he would “always be grateful to Larry.”
Summers’ withdrawal removes the Fed candidate closest to Obama, having advised the president since before his 2008 election on how to handle the financial meltdown. While the president has repeatedly defended Summers, his history as an advocate of deregulation and his comments, while president of Harvard, about whether women were naturally inclined to excel in the sciences made him a target among fellow Democrats.
The dollar weakened against major peers after Summers withdrew. The U.S. currency lost at least 0.6 percent versus the yen, euro, Australian and New Zealand dollars by 7:12 a.m. in Tokyo. Futures on Australia’s S&P/ASX 200 Index added 0.2 percent as contracts on the Standard & Poor’s 500 Index jumped 1 percent.
Summers, 58, was one of three candidates mentioned by Obama as possible replacements for Ben S. Bernanke, whose term as Fed chairman ends on Jan. 31. Janet Yellen, 67, the current Fed vice chairman, was also on the list along with Donald Kohn, 70, a former Fed vice chairman, the president said earlier.
Former Treasury Secretary Timothy Geithner, sometimes mentioned as another alternative, doesn’t want the Fed post and has made that clear since leaving the Treasury early this year, according to a person familiar with his thinking who asked for anonymity to discuss private conversations.
Summers up until today was the president’s favorite. The Syria debate worked to Summers’ disadvantage, giving those opposed to his nomination time to keep pressure on the administration, according to a person familiar with the process, who asked for anonymity to talk about internal debates.
Over the last several weeks, as the White House was immersed in dealing with Syria, members of the Senate were repeatedly asked whether they’d support Summers or Yellen. Had the administration moved more quickly on naming Summers, that might have been avoided, the person said.
Twenty U.S. senators, 19 Democrats and one independent, signed a letter of support for Yellen in July, who would be the first female Fed chairman if nominated and confirmed.
Montana Senator Jon Tester, a member of the Banking Committee, last week became the third Democrat to declare opposition to aSummers nomination, along with independent Senator Bernie Sanders of Vermont.
Senator Sherrod Brown, who circulated the letter and is a member of the banking panel, said at the time that the letter wasn’t aboutSummers, “even though there is obviously a lot of opposition here to Summers.” Brown’s spokeswoman, Meghan Dubyak, said last week the Ohio Democrat probably would vote against a Summers nomination.
Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, predicted Yellen would continue Bernanke’s policies should she succeed him.
“It tells you there will be no change in the leadership of the Fed and that the direction that it has taken under Bernanke is going to continue because his No. 2 is taking over,” Rupkey said. “If anything she is more pro-growth than Bernanke himself.”
“Summers was seen as the first choice, then Yellen, and everyone else is well down on the list of probabilities. There still could be some dark horse that emerges like Geithner, but otherwise it looks like Yellen,” Rupkey said.
Summers would keep Federal Reserve policy tighter than Yellen, according to a Bloomberg Global Poll last week of investors, analysts and traders who are Bloomberg subscribers.
The poll, conducted Sept. 10, showed 40 percent of respondents saw Summers getting the job, compared with 33 percent for Yellen. Three percent saw Obama opting for former Fed Vice Chairman Donald Kohn, while the remainder said they didn’t know or expected Obama to pick someone else.
The poll also showed Yellen was viewed more favorably among investors. Sixty percent of respondents had a positive view of Yellen, compared with 37 percent for Summers.
The potential Summers nomination was a hot-button issue for Democratic-leaning activist groups for much of the past few months. Most of them raised concerns about his support of deregulatory measures for the banking industry during his time in President Bill Clinton’s administration.
“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 the Washington-based Progressive Change Campaign Committee, in a statement e-mailed to reporters today.
The decision by Tester, Brown and Senator Jeff Merkley of Oregon, to publicly oppose the nomination of Summers created a hurdle for the administration on the banking panel, where Democrats hold a 12-10 edge. Support from Republicans, none of whom declared support for Summers, would have been needed for the nomination to clear the committee.
If Summers had been sent forward by the committee, a Senate floor fight would likely have followed. Lawmakers who have been critical of the Fed under Bernanke, such as Senator Rand Paul, a Kentucky Republican, and Sanders, indicated they might have been willing to try holding up the nomination.
Sanders today praised Summers for withdrawing and clearing the way for a better candidate.
“The truth is that it was unlikely he would have been confirmed by the Senate,” Sanders said in a statement e-mailed to reporters. “What the American people want now is a Fed chairman prepared to stand up to the greed, recklessness and illegal behavior on Wall Street, not a Wall Street insider.”
Behind the scenes, staff and lawmakers, even those who said they would support Summers, voiced concern in interviews about the intraparty fight a Summers nomination would cause. Democrats, who hold a majority in the Senate, face negotiations on the budget and an increase in the debt ceiling in the coming weeks.
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