arkets threw a little party this morning after Larry Summers, the polarizing ex-Treasury secretary who was recently viewed as a shoo-in to replace Ben Bernanke as chairman of the Federal Reserve, withdrew his name from consideration late Sunday.
After weeks of opposition from Democrats, Summers said in a letter to President Obama that he has "reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration or, ultimately, the interests of the nation's ongoing economic recovery."
By bowing out, Summers has bolstered the chances of Vice Chairman Janet Yellen, an economic "dove" who is expected to use a lighter hand when it comes to reining in the Fed's quantitative easing policies — in which it flushes the market with $85 billion a month in an effort to keep interest rates down and encourage borrowing.
Markets, which have grown addicted to the easy money, seem excited about the prospect of Yellen leading the Fed. Here's how they responded this morning to Summers' letter:
Treasury yields are down
Yields have been rising since Bernanke first floated the idea of "tapering," or cutting back on quantitative easing, in May. But this morning, yields on 10-year Treasury notes fell by eight basis points to 2.81 percent, the biggest drop in six weeks, according to Bloomberg. They are likely falling on the assumption that Yellen would taper more cautiously than Summers.
The dollar is down
The ICE Dollar Index, which measures the dollar against six other currencies, has dropped 0.5 percent to its lowest level in a month, according to Bloomberg.
As a dove, Yellen is expected to focus more on bolstering employment than keeping inflation in check. MarketWatch explains how that affects the dollar:
Summers was widely viewed as more hawkish than other leading candidates to run the Fed, meaning he was seen as more likely to push for a speedier end to the central bank's easy-money policies. Those policies have supported gold and pressured the dollar. [MarketWatch]
Gold futures are up
Not incidentally then, gold, which tends to rise when the dollar drops, was impacted as well. Gold December delivery is up $14.20, or more than one percent, to $1,321.60 an ounce. But this kind of rise might not hold up over time.
"It was an interesting move overnight, but it just didn't really seem to have much staying power," said Darin Newsom, senior analyst at DTN, a commodity-market research company. He described gold's initial jump as "a knee-jerk reaction" to the Summers news, adding that traders are now focused on "the next round of headlines." [MarketWatch]
Those next round of headlines are likely to come Wednesday, when the Fed will emerge from a policy-making meeting and possibly announce an update on tapering.
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- Why atheism doesn't have the upper hand over religion
- The world's dumbest idea: Taxing solar energy
- 31 TV shows to watch in 2014
- 10 things you need to know today: April 19, 2014
- He said he was leaving. She ignored him.
- Attack of the invasive species
- 14 wonderful words with no English equivalent
- Why would a young person today be religious?
- Which states get screwed worst by the Electoral College?
- Why we can't stop procrastinating, according to science
Subscribe to the Week