Mr Summer’s withdrawal from the race to be the new head of the Fed suggests the process of appointing the next Fed Chairperson should be smoother, with Fed Vice Chair Janet Yellen now appearing to have a free run at the position. Mr Summers was also perceived to be less inclined to embrace stimulus than Ms Yellen.
Investors are consequently being cheered by the prospect of a more dovish outlook than had previously been anticipated, with Ms Yellen expected to carry on the easy money policies initiated by Ben Bernanke.
Yields on government bonds have dropped, and the US dollar has broadly weakened. EUR/USD was up 0.33% at 1.3339.
A report today showed industrial production expanded 0.4% in August after being flat in July. Manufacturing was notably strong, its component rising 0.7%, following a decline in the previous month, with autos providing a big boost in this area. Excluding motor vehicles, manufacturing was up 0.4%. Expectations for the headline figure had been for a 0.5% increase, so the result is not sufficiently below this to sway the Fed’s decision appreciably against tapering. The jury remains out on manufacturing, though, with results blowing hot and cold from month to month.