- POSTED: 16 Sep 2013 22:24
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Asian markets rallied on Monday following news that Larry Summers has pulled out of the race to be the next chairman of the US Federal Reserve.
SINGAPORE : Asian markets rallied on Monday following news that Larry Summers has pulled out of the race to be the next chairman of the US Federal Reserve.
The former Treasury Secretary was considered the front-runner to replace Ben Bernanke early next year but has been facing strong opposition from the US Congress.
The 'exit heard around the world' also rallied global markets as the US dollar weakened against most major currencies.
In a letter to US President Barack Obama, Summers said, "I have 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."
Summer's surprise announcement is fuelling speculation that the central bank will continue its loose monetary policy.
Daryl Liew, Head of Portfolio Management at Reyl Singapore, said: "Summers, who's seen as being a more hawkish figure, could have ended or withdrawn QE much quicker than let's say Janet Yellen would have, let's say she's appointed Fed Chair person. So because of that, obviously if you've a lot more liquidity here in the emerging Asian markets, that's gonna be positive for risk assets."
Summer's exit also clears the way for rival Janet Yellen, the Fed's current vice chairman.
She is more aligned with Bernanke: cautious about winding back the Fed's US$85 billion a month bond buying programme.
But it's not a done deal.
Other names are still floating around - most notably former Fed vice chairman Donald Kohn and former Treasury Secretary Timothy Geithner.
But some analysts say Bernanke should finish what he started.
David Kuo, CEO, The Motley Fool, said: "I think he really should stay. And maybe, what is happening in the markets is that maybe, just may be, Ben Bernanke may have to stay a little bit longer than people think. And I think the markets will respond very positively, because at least they know what this person is all about."
Summers' announcement comes just two days before the Fed kicks off its much anticipated policy meeting where the central bank is expected to give clear indication on when it will start scaling back its monetary policy.
Most analysts say it is not so much when it starts but how big the cut will be.
Mr Kuo said: "To cut it back from US$85 billion to say US$75 billion is not a huge sum of money. So the market may just suddenly be quite grateful that the Federal Reserve is going to still pump money into the economy. Now if it does cut it by too much, then of course people will get very, very concerned."
But if there's one thing markets hate, it is uncertainty and while one level has been removed with Summers' exit investors are still anxiously waiting for the current Fed Chairman to take the podium later this week.