Financial markets rallied Monday, a day after Lawrence Summers took himself out of the running to be the next chairman of the Federal Reserve. Summers had been seen as a front-runner to replace Ben Bernanke, whose term expires in January.
His exit improved the odds for his chief rival for the position — Fed Vice Chairman Janet Yellen — as well as those of Donald Kohn, the former vice chairman of the Fed board.
The Wall Street Journal reports that stocks soared Monday because investors viewed Summers' withdrawal as a sign that the Fed will continue to keep interest rates low in a bid to stimulate the economy. Fed policymakers are scheduled to meet this week to decide whether to begin "tapering" their bond-buying policy known as quantitative easing.
The Journal said:
"Driving the rally are expectations that whoever succeeds Fed Chairman Ben Bernanke will continue the present course of monetary policy in the U.S. for the next few years and that any scaling back of the Fed's aggressive steps to stimulate the economy will be slow and gradual."
In early afternoon trading, the Dow Jones industrial average was up more than 140 points, or nearly 1 percent, and the Standard & Poor's 500 index was up about 13.5 points, or 0.8 percent.
Summers told President Obama in a letter that he wanted to avoid an acrimonious confirmation battle that wouldn't serve the interests of the Fed or the economy, NPR's Jim Zarroli reported on Morning Edition. "The odds against his nomination had been growing in recent days after at least three Democrats on the Senate Banking Committee said they would vote against him," Zarroli said.
Now the focus turns to whether Obama will pick Yellen for the Fed post.
As Zarroli reports, Summers has long been unpopular with women's groups because of comments he made as Harvard president about women's aptitude for science. But Terry O'Neill, president of the National Organization for Women, said the opposition to Summers goes beyond that.
The White House had indicated Obama "would pass over the better-qualified woman for the less-qualified man who happened to be his friend," O'Neill said. "This is something that women have seen over and over and over and over again in our working lives and it makes us cross-eyed with frustration."
The Washington Post's Ezra Klein says Yellen would be the most qualified Fed chairman in memory, with more than 9 years of experience at the Fed.
"Ben Bernanke had three years on the Federal Reserve's Board of Governors when he was named chairman. Paul Volcker had four years leading the New York Federal Reserve before he got the call. Alan Greenspan had never worked at the Fed at all."