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Questions Swirl After Summers Drops Out of Consideration for Fed

With Lawrence H. Summers having withdrawn from consideration to lead the Federal Reserve, Wall Street and Washington are analyzing possible outcomes and trying to prepare for what’s next.

Stocks and bonds rallied sharply Monday morning after the White House announced Mr. Summers’s withdrawal on Sunday. While Mr. Summers had been President Obama’s first choice to lead the Fed, investors had feared that, as Fed chairman, he might move too quickly to reduce the monetary stimulus that has pushed markets higher.

At midday, the Standard & Poor’s 500-stock index was up more than 0.94 percent in morning trading, while the Dow Jones industrial average was up 1.05 percent. European stock indexes were higher as well.

Economists and pundits weighed in on the news on Sunday and Monday and speculated about the president’s next move. Janet Yellen, the current vice chairwoman of the Fed, has been described by White House officials as a finalist, and her candidacy to succeed Ben S. Bernanke as the leader of the central bank has received widespread attention, The New York Times reported on Monday.

But it remains unclear how seriously the president is considering Ms. Yellen. “There are two reasons Yellen might not be named to the Federal Reserve,” Ezra Klein wrote on The Washington Post’s Wonkblog, expressing support for Ms. Yellen. “One is that President Obama or his key advisers think she would do a bad job. The other is that the White House feels that nominating her would be a dangerous capitulation â€" it would show they could be pushed around by liberal Democrats.”

William H. Gross, who runs the world’s biggest bond fund at Pimco, looked ahead to Wednesday, when the Fed’s policy making committee is scheduled to announce its policy intentions and release economic projections.

Jared Bernstein, a former chief economist to Vice President Joseph R. Biden Jr., wrote on the Economix blog of The New York Times that the next leader of the Fed should have certain characteristics, including being a “bubble watcher,” a “consumer ally” and a “better forecaster.”

Other commentators tried to divine the White House’s strategy.

The president has interviewed other candidates for the post. Donald L. Kohn, Ms. Yellen’s predecessor as vice chairman, has been considered, but he lacks academic credentials and has never served in a Democratic administration, according to The Times.

One sign seemed to suggest the odds favored Ms. Yellen. Gregory R. Valliere, the chief political strategist of the Potomac Research Group, said in a research note on Monday that Ms. Yellen was “now the clear favorite.” The president “has virtually no option,” the note said.

Fueling interest in that commentary was the fact that Mr. Kohn is a senior economic strategist at Potomac, as Business Insider noted.

Even a staunch ally of Mr. Summers expressed support on Sunday for Ms. Yellen. Brad DeLong, a professor of economics at University of California, Berkeley, said on his blog that he “enthusiastically endorsed” Mr. Klein’s blog post arguing for Ms. Yellen.

Another prominent economist, Phillip Swagel, a former assistant secretary for economic policy at the Treasury Department and a contributor to The Times’s Economix blog, wrote on Facebook in support of Ms. Yellen, according to James Pethokoukis of the American Enterprise Institute.

Some suggested that Timothy F. Geithner, the former Treasury secretary, might be the president’s choice. But Mr. Geithner has made it clear to the president that he would not reconsider his decision to retire from the Obama administration, according to The Times.

With the favorite for the Fed job out of the running, some commentators took the opportunity to discuss their dream candidates. Matthew Yglesias, a blogger for Slate, argued that Christina D. Romer, an economist who was the chairwoman of the president’s Council of Economic Advisers, should have the job, though he conceded that she is not under consideration.

Others analyzed what led Mr. Summers to drop out.

Several commentators welcomed the news. Mr. Summers “was too polarizing and too sympathetic to Wall Street to have the confidence of the country, or even a lot of Senate Democrats,” Jonathan Weil wrote in Bloomberg View.

“This is extremely good news, of course,” Felix Salmon wrote on his blog at Reuters. “Summers simply shouldn’t be a leader of any major institution: he’s too cocksure, too abrasive.”

It was a coincidence that Mr. Summers’s withdrawal came on the five year anniversary of the collapse of Lehman Brothers. “But it was, in a way, fitting,” The Economist wrote. “Mr. Summers’s surprise decision, conveyed in a letter to Barack Obama on September 15th, would not have been necessary without the forces unleashed by Lehman’s failure in 2008.”

But not everyone cheered the end of Mr. Summers’s candidacy. The financier Steven Rattner, a friend of Mr. Summers, took to Twitter.

The discussion was not confined to Wall Street and Washington. The comedian Seth Meyers also weighed in.