Larry Summers withdraws from Fed consideration

William M. Welch and Paul Davidson | USA TODAY

Federal Reserve Vice Chair Janet Yellen has emerged as the favorite to win the chairman's job after former Treasury secretary Larry Summers withdrew his name from consideration Sunday.

If nominated by President Obama, and confirmed by the Senate, Yellen, 67, would replace Fed Chairman Ben Bernanke, who is expected to step down in January. Obama is expected to nominate someone as soon as this month.

Summers was a top economic adviser in Obama's first term. As director of the National Economic Council, Summers oversaw the administration's response to the economic and financial crisis,

In a statement Sunday, the president praised Summers for his advice on the economy and said he would "seek his guidance and counsel in the future.''

"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,'' Obama said.

In a letter to the president, Summers cited political obstacles in his path to Senate confirmation, had he been named by the president.

"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,'' Summers wrote.

Summers faced opposition from within the president's own party because of his past role in financial deregulation and a leadership style that many find abrasive. At least four Democrats on the Senate Banking Committee, which would have to approve a nomination as Fed chair, had voiced opposition to Summers for the job.

Carl Tobias, an expert on federal appointments at the University of Richmond, said it ultimately would not have been a pleasant fight, with several Senate Democrats publicly voicing opposition to Summers. And the fight would have come at a difficult time for the president as he prepares to battle the GOP in Congress over budget and debt limit issues.

"Does Obama want to fight senators in his own party as well as Republicans right now?" Tobias asked.

In a statement Friday, Sen. Jon Tester, D-Mont., said he "believes we need a consensus builder to lead the Federal Reserve" and that he was "concerned about Mr. Summers' history of helping to deregulate financial markets.

Economist Michael Gapen of Barclays Capital, former head of a Fed monetary policy unit, says Summers' withdrawal makes Yellen "the likely candidate. Clearly, a lot of Democrats support her candidacy."

Yellen, he says, would be "viewed very positively by markets. She represents continuity" of the Fed's existing monetary policies. The Fed is expected over the next few years to wind down its extraordinary economic stimulus policies.

Jim O'Sullivan, chief U.S. economist of High Frequency Economics, says financial markets likely saw Summers as having a slightly less pro-growth approach than Yellen and being more vigilant about preventing high inflation. As a result, bonds could rally on the news of Summers' withdrawal, pushing down interest rates, he says.

After serving as Treasury secretary under President Clinton, Summers became president of Harvard University but resigned under pressure in 2006 after alienating much of the faculty and losing support of the university's governing board.

He sparked international controversy in 2005 for speculating at an economics conference that innate differences between men and women might be a reason women lag in some science and math fields.

Contributing: Aamer Madhani in Washington.