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Former Treasury Secretary Larry Summers dropped out of the running for chairperson of the Federal Reserve yesterday, leaving current Federal Reserve Vice Chairwoman Janet Yellen all but guaranteed to succeed Chairman Ben Bernanke. This is pushing the Dow Jones Industrial Average (DJINDICES:^DJI) up, as Summers was considered more likely to draw down the Federal Reserve's asset purchases. As of 1:15 p.m. EDT the Dow is up 146 points, or 0.95%. The S&P 500 (SNPINDEX:^GSPC) is up 0.8%.
Larry Summers was the Treasury secretary under the Clinton administration from 1999 to 2001 and was director of the National Economic Council for the Obama administration from 2009 to 2010. Summers was President Obama's preferred candidate for chairman of the Fed, but the media and Wall Street have largely opposed him. A wide spectrum of people have been rooting for Janet Yellen to get the job, as she is seen as more dovish and a better leader than Larry Summers.
The Federal Reserve is supposed to be independent, free from the political process to pursue its mandate of low inflation and full employment without the interference of political pressure. Many people believe Summers is too close with the administration, while others have complained that he is too close with Wall Street, having worked for Citigroup, Nasdaq, and hedge fund D.E. Shaw after leaving the Treasury.
Summers was expected to hasten the demise of the Fed's quantitative easing. The actions of the Federal Reserve have taken on an outsized importance in the markets since the Fed started buying $85 billion worth of long-term assets each month. Even the slightest hint from the Fed that it was considering slowing these purchases sent the markets into a tizzy, and the bond market sold off over the summer.
While we won't know for some time who will be the next chairperson of the Federal Reserve, we will get an update from the Federal Open Market Committee on Wednesday. Analysts expect the Fed to announce some slight tapering but otherwise leave in place most of the asset purchases.
Dan Dzombak has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.