Lawrence Summers's withdrawal as a candidate for Federal Reserve chairman came after an unprecedented campaign to stop a Fed nominee even before he was announced, spearheaded by Democratic senators who took on a president of their own party.
Several Democratic senators, including Jeff Merkley of Oregon and Sherrod Brown of Ohio, mounted a sustained lobbying campaign, pressing colleagues in their own party to oppose Summers on the grounds that he was too lax on financial regulation. They pressed forward as the White House was focused on building support for a military strike in Syria.
"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 recovery," Summers wrote in a letter yesterday to Obama.
People close to the process said Summers was Obama's top pick all along, even though White House officials late last week insisted the president had yet to make a decision.
Investors are debating the speed at which the Fed will taper its $85 billion in monthly bond purchases. Traders had speculated that, given Summers's past questioning of the effectiveness of quantitative easing, he may have pulled back stimulus faster than other candidates such as Yellen. Stocks rose and the dollar fell today.
Still, Yellen was viewed more favorably among investors, with 60 percent of respondents holding a positive view, compared with 37 percent for Summers. Thirty-five percent had a negative view of Summers, compared with 15 percent for Yellen.
David Fuller's view Interestingly, Ben Bernanke also wanted Janet Yellen to be his successor. However, there appears to have been some tension between the President and the Fed Chairman, shortly before Barack Obama was interviewed by Charlie Rose in June, and indicated that he would not reappoint Bernanke. There have been rumours ever since, even though Bernanke had indicated he wished to retire before Obama's comment during the June interview.
In any event, investors have been reassured that there is less risk of Bernanke's QE programme being unwound prematurely (shades of 1933), even though Obama has yet to nominate Yellen.
Additionally, in what has been a choppy environment for most stock markets since May, investors no longer have to worry about a contentious battle between the Senate and the White House following Lawrence Summers' withdrawal as a candidate for Federal Reserve Chairman.
More importantly, investors are now far less worried about the prospect of another war in the Middle East involving the USA. Even though Obama's plan only mentioned a cruise missile strike, it did not take too much imagination to consider some of the potential consequences, given the instability and bitterness within that troubled region. Chief among these were potential reprisals against Israel and a serious increase in tensions with Russia, given their role as protector and provider for Assad's regime. Additionally, various Al-Qaeda cells in the Middle East and beyond would have had additional incentives to prepare strikes against soft Western targets.
The situation involving Syria's civil war and its chemical weapons is still a 'breaking story' in news jargon. Nevertheless, for global investors the international scene understandably feels a little less dangerous today.