Summers drops out of race for Fed chair

Larry Summers has pulled his name from the list of contenders to replace Ben Bernanke as the next chairman of the Federal Reserve, after a number of Democratic senators announced they would vote against his confirmation.

In a letter to US President Barack Obama yesterday, Summers said that now is a "complex moment in our national life". Consequently, he "reluctantly concluded" that should he be nominated, the confirmation process would be "acrimonious, and would not best serve the interests of the Federal Reserve, the administration, or ultimately, the interests of the nation's ongoing economic recovery".

The White House had previously hinted that Summers was its preferred candidate, but Obama gave little away in a statement last night. Obama said he had "accepted [Summers'] decision", and thanked him "for his tireless work and service on behalf of his country". The President added: "I look forward to continuing to seek his guidance and counsel in the future."

Summers' withdrawal leaves Janet Yellen, the current vice-chair of the Fed, as the clear front-runner. Yellen may not have been the first choice of the White House, but she appears to be a popular choice among both markets and central bankers. European markets responded well to Summers' announcement, with the FTSE 100 up 0.7% and the Dax up 1.16%.

A recent poll of CentralBanking.com readers placed Yellen comfortably in first place, with 41% of the vote, while just 7% of the vote went to Summers. Stanley Fischer, who recently returned to the US after stepping down as governor of the Bank of Israel, was the second most popular choice, with 21% of the vote.

In an interview with CentralBanking.com in August, David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said the Fed would benefit from a "seamless" transition, rather than shaking things up with an external appointment. "It is hard to argue you need to change the culture and the way in which the Fed does things," he said.

Other high-profile candidates include Donald Kohn, Timothy Geithner and Christina Romer.