16 Sep 2013

Summers out of contention for Fed post

12:24 pm on 16 September 2013

The Wall Street Journal reports former US Treasury Secretary Larry Summers has withdrawn from the race to succeed Ben Bernanke at the Federal Reserve.

The newspaper cited a letter from Mr Summers to President Barack Obama in which he stated the likelihood of an "acrimonious" confirmation process, had he been appointed, as the reason for stepping aside.

''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," the letter said.

President Obama said on Sunday he has accepted the decision of by Mr Summers to withdraw from consideration.

There has been an unusual public debate about Mr Bernanke's successor at the Federal Reserve and

Mr Summers, a former director of the National Economic Council in 2009 and 2010, was seen as the front-runner for the post.

He was also chief economist of the World Bank from 1991 to 1993.

However, as Treasury Secretary in President Clinton's administration, Mr Summers helped dismantle the law that separated commercial banking from investment banking, a change which helped lay the groundwork for the global financial crisis.

The other contender is Fed vice-chair Janet Yellen, a highly regarded economist who has played a big part in the bank's current stimulus policy. However, she has no private sector experience.

Mr Bernanke's term as Fed chief is due to expire at the end of January next year. If Ms Yellen is chosen to succeed him, she will be the first woman to hold the post.

The New Zealand dollar jumped 1 US cent after Mr Summers withdrew from contention.

The kiwi opened at 81.29 US cents on Monday and went as high as 82.27 US cents following the news.

Orderly policy wanted by NZ

Whoever takes over as the next chair, it will have repercussions for all markets, but AMP New Zealand's chief economist, Bevan Graham, said what the New Zealand market is looking for is an orderly and well-communicated path for monetary policy.

He said Mr Summers is not necessarily against quantitative easing, rather he's sceptical about how effective it's been.

Mr Graham said going forward the big risk for monetary policy is that there is a policy mistake.

He said the risks of a policy mistake are the same no matter who is the chair of the Federal Reserve.

Because New Zealand is dependant on exports, Mr Graham said it would like to see a strong United States.

He said there has probably been too much emphasis on monetary policy in the United States over the last five years, and not enough on some of the broader structural reforms that still need to happen there.