The Wall Street rally after Larry Summers bowed out of consideration to lead the Fed is really about the Fed's stimulus program of 'quantitative easing.' Wall Street wants it to last as long as possible, and Janet Yellen would likely close the spigot more slowly.
This week, Wall Street is apparently breathing a sigh of relief.
Markets jumped Monday at the news that Larry Summers, a former Treasury secretary and President Obama’s assumed first choice to replace outgoing Federal Reserve Chairman Ben Bernanke, had withdrawn his name for consideration of the post. The rally continued into Tuesday afternoon, too, just as the Federal Open Market Committee (FOMC), the Fed’s 12-member monetary policymaking body, began its two-day meeting to determine how much it will taper its asset-buying and market-stabilizing program known as “quantitative easing.”
Indeed, the fate of this program – or rather, perceptions about how quickly and how much the Fed would scale back its current $85 billion-per-month purchase of long-term government bonds and mortgage-back securities – has loomed behind the markets’ apparent distaste for the controversial Mr. Summers, whose personal style many find too aggressive and often abrasive.
As Wall Street now turns its attention to Janet Yellen, the Fed’s current vice chairwoman and a leading candidate for the top job, quantitative easing continues to dominate its perceptions of the next central banking chief. Ms. Yellen, many market watchers believe, would scale back the Fed’s stimulus program more slowly than Summers might have, thus keeping the easy-cash spigot flowing longer.
“Actually, the jump on Wall Street may have been more about eliminating uncertainty than a cry for Yellen over Summers,” says Walter Schubert, professor of finance at La Salle University in Philadelphia.