A wide array of current and former Obama officials backed Summers, arguing that his crisis experience and economic prowess made him an exceptional candidate. Yellen’s supporters, meanwhile, noted that she has deep Fed experience and has been an architect of the central bank’s efforts to reduce unemployment.
The drama started after word of Summers’s candidacy first circulated early this summer — when most Fed watchers thought Yellen would be appointed.
Liberals on Capitol Hill, as well as a wide array of economists, erupted. They said he had a brusque personality that would be problematic at the Fed.
Summers’s allies took to the media, noting that he was an architect of the president’s push for tough financial regulations after the crisis and couldn’t be so difficult to work with if he had garnered the support of so many of his White House colleagues.
When questioned on Capitol Hill, Obama made many of the same points in defense of his former adviser. But given the heated opposition, Obama decided to announce publicly that he would wait until the fall to make a decision, hoping to buy time and cool tensions.
Some former administration officials say, in retrospect, that the White House got the strategy wrong. While the noise from Capitol Hill died down for a while — and Senate leadership privately told the White House it would do all it could to get Summers through — key voices in the opposition grew louder.
In the past week, Democratic Sens. Jon Tester (Mont.) and Sherrod Brown (Ohio), members of the banking committee, which would have had to endorse Summers, announced that they would vote against him. Another committee Democrat, Sen. Jeff Merkely (Ore.), had said long ago that he would oppose Summers, and it was widely assumed that Sen. Elizabeth Warren (D-Mass.) would have joined them as well.
That would have meant that Obama would have had to court Republicans to get Summers confirmed — a difficult task at the same time he would be trying to strip away Republican support for a deal to keep the government open and raise the federal borrowing limits.
“The truth is that it was unlikely he would have been confirmed by the Senate,” said Sen. Bernard Sanders (I-Vt.), a liberal who said he would have voted against Summers if he was approved by the Senate banking committee.
Obama is now short on time to make a nomination, given that the Senate often takes a few months for confirmation. While some speculated Sunday that Obama might turn to Geithner, a person close to the former Treasury secretary said he does not want to be considered.
The decision may give a lift to markets, which were concerned about the uncertainty surrounding the Fed nomination process and the perception that Summers would have been less supportive of the Fed’s efforts to reduce unemployment.
“This news should be positive for the markets,” said Millan Mulraine, director of U.S. rates research at TD Securities. “We could see a rally.”
Summers’s friends expressed regret that the perception of him has been more caricature than reality, arguing that he would have pushed the Fed strongly to reduce unemployment and to demand more transparency in the financial system.