Larry Summers' withdrawal prompts market surge
Frontrunner for US Fed chair pulls out and gives boost to investor confidence across global markets
LARRY SUMMERS, widely seen as the frontrunner to succeed Ben Bernanke as the next chairman of the US Federal Reserve, has pulled out of the race. Following the news, global stocks hit a five year high and the pound rose against the dollar.
Although Summers was President Obama's first choice for the position, he was not popular with the rest of the Democrats. Janet Yellen, Bernanke's second-in-command, now looks most likely to win the nomination. If selected, Yellen would be the first female leader of the Fed in its 100-year history.
The withdrawal of Summers, a former US Treasury Secretary, prompted what Kit Juckes of Société Générale dubbed a "Larry Rally" in global markets. According to the Financial Times, the FTSE All-World equity index is advancing 0.7 per cent to 252.0, on course for its best closing level since June 2008.
When the European stock markets opened this morning, shares had jumped to a five year high, the FTSE 100 rose one per cent and the pound climbed up 0.5 per cent against the dollar.
Asian emerging markets, which have recently come under pressure from the prospect of a less stimulatory US central bank, also benefitted from the announcement. The main indexes in the stock markets in India, Thailand and the Philippines all rose nearly 2 per cent. Had Summers taken over the Fed chair, it was thought he would take more radical steps to cut back the US's economic stimulus measures.
According to The Guardian, Summers' resignation from the race looks set to trigger a rally on Wall Street later today, as US investors give the thumbs-up to the prospect of "a more dovish Fed chair.”
Bernanke is preparing to leave just as the Federal Reserve's process of scaling back quantitive easing gets under way and the prospect of an uncertain future of economic stimulus has left global markets jittery. However, while Summers was in favour of scaling back the programme more quickly, Yellen is thought to be in favour of reducing bond buying slowly and leaving rates lower for longer.
Michael Hewson, senior market analyst at CMC Markets, told the Daily Telegraph that the prospect of Yellen taking over the job is "soothing market nerves about the uncertainty a Summers chairmanship would have brought, and bringing with it the preferred prospect of continuity of policy at the Fed when Bernanke leaves in January next year." ·