Markets rally as Larry Summer out of Fed race

Global stock markets rallied yesterday after former US treasury secretary Larry Summers ruled himself out of the race to succeed Ben Bernanke at the helm of the US central bank.

Larry Summers: pulled out of the race to succeed Ben Bernanke. Picture: Getty

Summers’ surprise withdrawal appeared to open the door for Federal Reserve vice-chairwoman Janet Yellen, seen as his chief rival for the position. She is believed to be in favour of scaling back the Fed’s bond-buying programme less aggressively than Summers.

The dollar fell to its lowest level in almost three weeks against the euro, while sterling hit an eight-month high. Jane Foley, senior currency strategist at Rabobank, said: “Clearly the dollar doesn’t like the idea it could be Yellen at the helm because of the interpretation that quantitative easing (QE) could be in place for longer.”

The Fed begins a two-day meeting today to decide when to start reducing its QE programme from the current pace of $85 billion (£53.3bn) a month.

Chris Beauchamp, market analyst at IG, said: “It looks as if Janet Yellen is now a shoo-in for the top job, something that will keep traders in a better mood in the long winter months of tapering that probably lie ahead.”

The FTSE 100 index ended up 39.06 points or 0.6 per cent at 6,622.86, Germany’s Dax rose 1.2 per cent while the Dow was up 1 per cent by the London close.

More than 350 economists recently signed a letter to President Barack Obama calling on him to nominate Yellen amid signs that the US president was leaning toward Summers, who resigned as president of Harvard in 2006 following comments he made about women’s abilities in maths and science.

In his letter to Obama, confirming he was withdrawing from the race to become chairman of the Fed, Summers said: “I have reluctantly concluded that 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 economic recovery.”

Yellen, who chaired the White House council of economic advisers under former president Bill Clinton, would be the first woman to lead the US central bank.