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Lawrence Summers drops out of running for Fed chief

Unlikely to win confirmation, Lawrence Summers withdraws his bid to be the next Fed chairman. Top contender Janet L. Yellen could become the first woman to lead the central bank.

September 15, 2013|By Don Lee and Jim Puzzanghera
  • Former Treasury Secretary Lawrence Summers has removed his name from contention to be the next head of the Federal Reserve.
Former Treasury Secretary Lawrence Summers has removed his name from contention… (Mark Wilson / Getty Images )

WASHINGTON — With political opposition mounting against him, former Treasury Secretary Lawrence H. Summers pulled his name from consideration as the next chairman of the Federal Reserve, an abrupt turn of events that underscored President Obama's weakness in Congress.

The unexpected decision, disclosed Sunday, left some financial analysts recalibrating the odds of changes in the central bank's policies, which have major global implications.

Economists and other experts were stunned.

"Wow, a big tree just fell in the forest," said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.

As Obama's chief economic advisor in his first term, Summers was considered the president's top choice to succeed Fed Chairman Ben S. Bernanke in January. But doubts had grown in recent days over whether Summers could be confirmed by the Senate, and in the end, it was the president's fellow Democrats who doomed the nomination.

Summers' withdrawal from consideration for what is arguably the most powerful economic policy-making job in the world opens the door for the other leading contender, Janet L. Yellen, the Fed's vice chairwoman and a close ally of Bernanke.

If nominated and confirmed, the former UC Berkeley economist would be the first woman to head the 100-year-old central bank. She probably would continue policies aimed at keeping interest rates low, probably for longer than Summers would have, experts said.

Obama, in accepting Summers' decision to withdraw, praised his former aide.

On the day the White House began marking the five-year anniversary of the financial crisis with a briefing and a report, the president lauded Summers for "his expertise, wisdom and leadership" that Obama said helped the nation's economy return to growth.

"I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future," Obama said in a statement issued by the White House.

Yet many of Summers' sharpest critics, especially liberal Democrats, saw him as having a hand in creating the very conditions that led to the worst financial crisis since the Great Depression and as being a symbol of the administration's policies they believe are too cautious and too favorable to business.

And women's groups that supported Obama were outraged that he might pass over a highly qualified candidate in Yellen.

Obama, already needing Democrats' support for his policy toward Syria and facing a confrontation in the next few weeks with Republicans over the budget, couldn't afford such a rift within his party.

Liberal groups had argued that Summers' support for some key deregulatory decisions in the late 1990s — including the repeal of the Glass-Steagall legislation that forbade federally insured, deposit-taking institutions from acting as investment banks — had helped lead to the 2008 financial crisis.

Many viewed with suspicion Summers' close connections with Wall Street firms — he previously worked for hedge fund D.E. Shaw and has been doing consulting for Citigroup Inc. since leaving the White House in 2010.

Moreover, though most experts and others viewed Summers as a brilliant economist, many also regarded him as brusque and difficult to get along with.

The public campaigning, mostly against a Summers' nomination, was highly unusual in the history of the Fed. It partly reflected people's feelings toward Summers as well the Fed's increasing importance.

The central bank has flooded the financial system with cash to bolster the weak economy and help drive down interest rates, sparking concerns of creating more bubbles and higher inflation, although inflation has remained low.

But it was political reality that pushed Summers to withdraw.

Senior Obama administration officials said that Summers was concerned about a contentious battle in the Senate Banking Committee and that the White House had told him confirmation would be tough to secure.

Summers said as much in his withdrawal letter to Obama, which was made public.

"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 wrote.

A Senate Democratic aide, who was not authorized to speak publicly and requested anonymity, said it had become increasingly clear that there were not enough votes to confirm Summers in the Banking Committee.

Several members of the committee, including Sen. Sherrod Brown (D-Ohio), had voiced strong support for Yellen. Another committee member, Sen. Jeff Merkley (D-Ore.), had called a potential Summers nomination "disconcerting."

And on Friday, a spokeswoman for Sen. Jon Tester (D-Mont.), a centrist on the committee, said Tester would vote against Summers if he were nominated.

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