The debate over who will become the next Chairman of the Federal Reserve is heating up.
It was long believed that current Vice Chair Janet Yellen was the clear and obvious favourite.
But former Treasury secretary Larry Summers seemingly emerged out of nowhere as an unlikely frontrunner.
However, UBS’s Art Cashin floats the idea that a Summers’ candidacy is just a “ruse.”
It would have all started when volatility in the markets spiked after Bernanke suggested the Fed could soon taper its monthly purchases of $85 billion worth of bonds.
From Cashin (emphasis added):
The FoF (Machiavelli Chapter), Casts A Jaundiced Eye On The Larry Summers “Candidacy” – A group of ultra-cynics at the Friends of Fermentation (FoF) Seminars has a bit of a different spin on the growing buzz about a possible selection of Larry Summers to replace Ben Bernanke. The FoF contingent thinks the whole thing may be a ruse to “condition” the markets to the ultimate election of Yellen.
Part of the hypothesis is that some of the economic advisors to the President were shocked by the market’s sharp and sudden response to Bernanke’s hint of a shift to tapering. The fact that the hint required nearly the entire FOMC to be trotted out to soothe markets showed the Administration how sensitive to change markets might be.
A looming key change will be the announcement of the Bernanke successor. If there is a negative response, there is no easy “walk back”. The President would be hardly willing to take the political (and legacy) hit of a withdrawal and new nominee. The FoF cynics think that led Washington strategists to suddenly refloat a Summers candidacy three weeks ago, after it had been presumed dead and buried. Summers, as a non-Fed type, with some historical controversy attached would work as the perfect foil to openly vet and debate Yellen’s candidacy. A full debate could gauge reactions in the markets and also condition them to Yellen assuming the throne. Peanuts, pondering and plotting are all on the FoF menu.
For now, all of this debate seems to have advanced the odds of other Fed Chair candidates like former Vice Chair Roger Ferguson and former Council of Economic Advisors Chair Christina Romer.
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