Summers Over – Citi's Take: 10-15 bps In 10Year Downside

Just out from Citi’s Steven Englander:

Summers withdraws name for Fed job


Larry Summers is reported to have withdrawn his name for consideration as Fed Chairman.


Market response – will add to downward pressure on bond yields and may be worth another 10-15bps on the downside


FX terms – hard to see it as anything but USD negative for now. Main buying opportunities probably high current account deficit EM, AUD,and JPY. Discussion of waning Summers odds had been in market last week so we would see impact on JPY in 0.5-1.0 percent range.


Whether this puts Yellen in driver’s seat is unclear, so this Wednesday tapering and FOMC forward guidance are still the focus.  We still think tapering schedule rather than FOMC language will be the main market driver.


This throws the field wide open between Janet Yellen, Donald Kohn, Roger Ferguson among others. Summers had been perceived as the (relative) hawk for favoring aggressive fiscal policy over quantitative easing. With summers out of the picture for now, Democrats would likely support any of the other candidates but they all may carry some political damage for having been associated with the Fed during its laissez-faire deregulative regime.


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