In a startling development, Lawrence Summers told the White House Sunday he does not wish to be considered for the nomination to succeed Ben Bernanke as chairman of the Federal Reserve.
The sudden announcement would seem to leave the way clear for Federal Reserve Vice Chairman Janet Yellen to become the first female Fed chief when Bernanke's second four-year term as chairman expires at the end of January.
While other names have been mentioned, Summers and Yellen were believed to be the two leading candidates for the most powerful central banking post in the world.
Former Treasury Secretary Summers withdrew his name from consideration in a telephone call to President Barack Obama Sunday afternoon.
"Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for Chairman of the Federal Reserve," Obama said in a statement released by the White House.
"Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today," the President's statement continued.
"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 added.
In a letter to the president, obtained by the Wall Street Journal, Summers wrote, "I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation's ongoing economic recovery."
There was no confirmation of the letter from the White House at the time this was written.
The Summers withdrawal, while dramatic, should not come as a total surprise. MNI reported last Thursday "there is considerable opposition to Summers in the Senate, and questions have arisen whether President Obama will be willing to expend his dwindling 'political capital' to get Summers confirmed. There is speculation Obama might have to settle for Yellen or perhaps a third choice."
Summers, who headed the White House National Economic Council in Obama's first term, was thought to be the President's preferred candidate. However, in recent weeks, a growing number of Senate Democrats had publicly expressed their opposition to controversial Harvard University professor.
At least four Democratic members of the Senate Banking Committee, which must recommend any Fed nominee to the full Senate, were reportedly ready to vote against Summers. Meanwhile, there was enthusiastic Democratic support for Yellen on Capitol Hill and elsewhere.
Yellen, 67, who is widely believed to be more congenial than the sometime reputedly abrasive Summers, is also the favorite of many people within the Federal Reserve System.
It is not yet certain Yellen will get the nomination, but if she does and if she is confirmed, many Fed watchers will undoubtedly presume the Fed will pursue a more accommodative monetary policy course than if Summers had gotten the position.
Long-time Summers associate Bradford DeLong said last week that Summers and Yellen would both be slow to tighten monetary policy, but that Summers would be quicker to tighten if he saw an inflationary threat. DeLong, who served under Summers at Treasury and with him at Harvard, said Yellen would be more likely to wait for consensus to build before tightening monetary policy.
However, as MNI reported last Thursday, the "dovish" label often attached to Yellen is not entirely fair. She supported tightening moves 20 times during her career as a Fed governor and as San Francisco Federal Reserve Bank President and as never dissented against a rate hike.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.