The bond market in particular was appalled by the idea of a Summers tenure. Rates on the 10yr Note (^TNX) went from 2.52% to over 2.6% almost immediately after the rumors surfaced Tuesday night. They've since settled a bit but are still inflated.
Summers has been a noted skeptic of the Fed's quantitative easing measures. The possibility that he would immediately pull the plug on the buying program introduced even more uncertainty into a situation with plenty of it already.
Simon Baker of Baker Ave Asset Management says the White House is bluffing. "The White House floated the name out there clearly as a favor but even the liberal Democrats don't like him," Baker says in the attached clip. Summers is bombastic, opinionated and polarizing. Characteristics the FOMC really doesn't need.
Beyond just doing a favor for Summers, who's name hadn't been bandied about for any reason in quite a while, the idea that such a wild card could be in the running also served the purpose of making presumptive nominee Janet Yellen more palatable. Hawkish conservatives want QE to end but would rather not see a guy who's been on the wrong side of economic debates since 2009 come in and kill it in one fell swoop.
Baker says Janet Yellen is still the odds-on favorite to replace Bernanke, but traders figure to be twitchy about alternatives, if only because they're looking for an excuse to pull back anyway. There will be a consesus on the next Fed chief but apparently the White House isn't content to just let the transition from Bernanke to Yellen happen without a hitch.
The only winners may be traders who like volatility, and the briefly resurgent reputation of Larry Summers.
- Larry Summers
- Janet Yellen
- Ben Bernanke
- White House