Risk Management, Trading & Portfolio Strategies

Larry Summers is out of the running for Fed chair

Larry Summers withdrew his bid for Fed chair this week, following weeks of rumor and debate in the financial industry.

Larry Summers withdrew his bid for Fed chair this week, following weeks of rumor and debate in the financial industry.

It seemed like only yesterday that Janet Yellen's chances of becoming the head of the Federal Reserve Board were plunging and Larry Summers looked to be the heir apparent to Ben Bernanke. Now, following a surprise announcement from the former Treasury Secretary and one-time Harvard University president, the race is wide open to see who will next take the top spot in the Marriner Eccles Building.

"This is a complex moment in our national life. 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 in a statement.

He went on to support the current round of financial stimulus, the third iteration of quantitative easing (QE). Summers was widely expected to continue the same policy to some degree, although most of the flaws of his candidacy were, as we have written about on this blog, related to personal character defects and his problematic management style. 

The market's reaction to Summers' withdrawal was positive, with stocks surging and bond prices falling on news that Yellen, who hews closely to Bernanke's monetary viewpoint, is back in contention. Yet her success is not certain as the past few months have made it clear that President Barack Obama prefers to nominate someone who is not so closely in-step with Bernanke's policies.

It's unclear how the market will react when the White House formally announces its nominee, let alone enters a potentially drawn-out confirmation process in the Senate. Investors, hoping to keep an eye out for the sort of volatility that portends big losses, should incorporate investment risk management tools into their overall strategies. SmartStops are an innovative way to stay ahead of the game. Learn more about how they work by exploring our website today!

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