Fed Vice Chairman Janet Yellen is the leading candidate to replace Ben S. Bernanke following the withdrawal of Lawrence Summers from consideration, a person familiar with the process said.
Obama hasn’t made a decision on a nominee for the top Fed post and several people familiar with White House discussions said another candidate may yet emerge. An administration official said the process of reviewing candidates isn’t starting over now that Summers has dropped out of the running.
The official and the people asked for anonymity to discuss private deliberations on the nomination.
Summers, Yellen and former Fed Vice Chairman Donald Kohn were three people who Obama previously said he was considering for the post. Former Treasury Secretary Timothy Geithner, another potential candidate, isn’t interested in the job, according to several people.
Summers’s decision, which he made public yesterday, doesn’t change Obama’s timetable for selecting a nominee, White House press secretary Jay Carney said, while refusing to discuss who the president is considering.
“It remains what the president said and what we have said, that he expects to have an announcement in the fall,” Carney said. “And calendar watchers will note that we are still in the summer.”
The withdrawal of Summers spares the president a potential fight within his own party after an unprecedented campaign by several Democratic senators to block a nomination before it was even made. That threatened to leave Obama needing help from Republican senators at a time when he’s gearing up for battles over federal spending, the debt ceiling and dealing with Syria.
“The prospect of facing a fight over its Federal Reserve nominee was simply one battle too many for the White House,” said Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington.
With Summers out of the running, Yellen moves up on the list of possible choices but she isn’t “a lock to get the nod” from Obama, he said.
Obama said at an Aug. 9 news conference that he was looking at a “range of outstanding candidates” including Summers, 58, and Yellen, 67.
Summers had become a lightning rod for some of Obama’s allies in Congress and advocacy groups. Democratic lawmakers, including Senators Jeff Merkley of Oregon and Sherrod Brown of Ohio, said they opposed Summers on the grounds that he was too lax on financial regulation.
Summers, a former Treasury secretary and top economic adviser, acknowledged the opposition in a letter yesterday to the president.
“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.
The people familiar with the process said Summers had been Obama’s top choice, even though White House officials late last week insisted the president had yet to make a decision.
The president’s inner circle was divided over whether Obama should expend capital on a Summers confirmation fight. Unlike the drama playing out in public, it wasn’t a split along gender lines, according to the people, who asked for anonymity to talk about internal deliberations.
The split came down to those who figured that the battle would be too costly, including Chief of Staff Denis McDonough and senior adviser Valerie Jarrett, the people said.
The presidential advisers backing Summers mostly were those who worked alongside him during the peak of the 2009 financial crisis and felt they owed it to their former colleague to fight for him. They included the core of Obama’s economic team as well as most of the president’s female senior advisers, including deputy chief of staff Alyssa Mastromonaco and White House Counsel Kathryn Ruemmler, according to the people.
The decision on the next Fed chairman -- Bernanke has indicated he isn’t interested in serving a third term -- is coming as investors are debating the speed at which the Fed will taper its $85 billion in monthly bond purchases. Traders had speculated that, given Summers’s past questioning of the effectiveness of quantitative easing, he may have pulled back the stimulus faster than other candidates such as Yellen.
With Summers out of contention, stocks rallied with Treasuries and the dollar weakened against all its major peers.
The Standard & Poor’s 500 Index (SPX) surged 0.6 percent in New York, while five-year Treasury yields declined seven basis points to 1.62 percent. The dollar traded near the weakest level this month versus the yen.
Democratic opposition to Summers’s possible nomination had been building, spurred in part by the efforts of Merkley and Brown, who lobbied fellow lawmakers at weekly caucus lunches.
On Sept. 13, Senator Jon Tester, a Montana Democrat, announced he would oppose Summers, bringing the number of “no” votes on the Senate Banking Committee to three, including Merkley and Brown.
The pitch from Merkley and Brown to fellow Democrats was this, according to Senate Democratic aides: If you think you’re going to vote against Summers, speak up now, because it’s less embarrassing to Obama to stop Summers before he’s nominated than after a messy confirmation fight.
Senator Elizabeth Warren, a Massachusetts Democrat and critic of Wall Street, also was involved. She informed the White House last week that she would oppose Summers, according to a person familiar with the matter.
“Larry was not my first choice for Federal Reserve chair,” Warren said in an interview today with Peter Cook on Bloomberg Television.
“I’m a big fan of Janet Yellen,” Warren said. “I think she’s terrific. She’s got the right experience, and I think she’d make a terrific Federal Reserve chair.”
Warren’s vote would have meant at least four Democrats on the banking panel were opposed to Summers. The White House would have had to rely on several Republican votes to get him through the 22-member committee.
The Democratic effort spilled into the open when a senator offhandedly acknowledged in late July the existence of a letter of support for Yellen. That letter, drafted and circulated by Brown, was signed by 20 senators.
The letter touched a nerve in the White House, and with Obama himself. He defended Summers days later in a closed-door meeting with Democrats on Capitol Hill, while mentioning that Kohn also was under consideration.
As Democratic opposition grew, Summers’s supporters say the White House didn’t effectively push back. Summers was left vulnerable to what some called a “perfect storm” of events: the delay in his formal nomination, the debate raging over Syria, and the forthcoming budget fights with Congress, according to a person familiar with the matter.
In late August, the White House called on former administration officials Stephanie Cutter and Jim Messina to work to counter anti-Summers reporting without ever marshaling current administration officials, many of whom, including most of the economic team, supported Summers, according to people familiar with the situation.
A tight circle of the president’s advisers, convened to weigh various Fed candidates, stopped meeting once Syria dominated the agenda and Obama’s attention turned to the divisive debate over whether to begin a military strike in response to the Aug. 21 chemical weapon attack that killed more than 1,400 people.
While Obama’s aides insisted that the Fed chairman’s confirmation process wouldn’t get wrapped up in the budget fights set to start in September, Summers was emerging as collateral damage, the person familiar with the situation said.
The White House wouldn’t comment. “Like always, we will decline to discuss or comment on outside speculation around the personnel process,” said Amy Brundage, a spokeswoman.
Obama, in a statement yesterday, called Summers “a critical member of my team as we faced down the worst economic crisis since the Great Depression.” He touted his former economic adviser’s “expertise, wisdom and leadership” for helping guide the crisis response and nascent recovery.
Carney said today that “Larry clearly was in the trenches here with the president.”
Since June, when Obama indicated in an interview with Charlie Rose that he wouldn’t appoint Bernanke to another term, intrigue over whether the president would pick Summers or Yellen turned into a political contest that Fed watchers called unprecedented.
As signs over the past few months continued to point to Summers as the leading candidate, 40 percent of investors, analysts and traders who are Bloomberg subscribers saw Summers getting the job, according to a Bloomberg Global Poll.
Still, Yellen was viewed more favorably among investors, with 60 percent of respondents holding a positive view, compared with 37 percent for Summers. Thirty-five percent had a negative view of Summers, compared with 15 percent for Yellen.
Summers was pegged by his opponents as a deregulator for his support of loosened rules on the financial industry during President Bill Clinton’s administration.
In 1998, Summers, then-Fed Chairman Alan Greenspan and Treasury Secretary Robert Rubin, blocked efforts by Brooksley Born, then head of the Commodity Futures Trading Commission, to regulate the derivatives market. It later expanded to include the toxic instruments that led to the financial market crisis.
Summers also sought repeal of the Glass-Steagall Act, the Depression-era law separating commercial and investment banking.
Said Merkley in a July interview: “If you nominate someone who is a life-committed deregulator to be in a regulatory position, and if you believe regulation is necessary to prevent fraud, abuse, manipulation and so forth, then there’s a lot of questions to be asked: Why is this person appropriate?”
A confirmation fight that split Democrats was an unwelcome possibility, three aides familiar with the discussions said. That message was conveyed to the White House by the camp opposed to Summers, according to one of the Senate aides.
Some Republicans were approached by the White House as late as last week as the administration tried to get a better sense of whether Summers could win the required support, one of the aides said. While the entreaties weren’t rejected, the potential price of the votes was considered too steep, as was the reliability of the Republican lawmakers.
“If they really thought they could pick up the Republican votes necessary to provide a comfortable margin they still can’t figure out what’s going on up on the Hill,” said Manley.
By Sept. 13, what was becoming apparent to the White House earlier in the week would be hammered home, when Tester of Montana released a statement announcing opposition to Summers.
Two days later, Summers’s letter arrived, on the five-year anniversary of the peak of the financial collapse that ushered in the crisis he had fought side-by-side with Obama to contain.
To contact the reporters on this story: Julianna Goldman in Washington at firstname.lastname@example.org; Phil Mattingly in Washington at email@example.com
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