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Commentary

The Next Fed Chair Will Not Be Larry Summers

It’s the end of the Fed-chair-road for Larry Summers, who withdrew his nomination for the post yesterday after Democrats opposed him on the grounds that he’s a deregulator and will be a disaster as a regulator. Summers pushed to deregulate derivatives, and also to repeal Glass-Steagall, both of which precipitated the 2008 crisis.

The front-runner now is Janet Yellen, who is currently on the Fed board. She has been worried about asset price bubbles in the past, a refreshing change from recent fed chairman (Greenspan, Bernanke). However, she’ll keep interest rates at zero or close for the foreseeable future, and is likely to keep QE on a measured decrease.

Markets are up, supposedly on this news. US S&P Futures are up 1%, India’s Nifty will likely open up 1% or more and Asian stocks  are in general up around the same percentage. Sentiment drives markets more than reality, and like Rajan, there is always overglorification of individuals. Yellen will have a tough time navigating the insane volatility that is ahead of us, and this time, it may need more than a Fed to resolve.