Here's the President's statement.
This is a big short-term loss for the President. His administration is perceived to be in disarray right now, and this will only further confirm that perception.
However, this gives the President a golden opportunity to learn from his conservative critics and marshall a strong and loyal group who will fight for another nominee - a known conservative. The base can be reengerized by a new pick ... please, oh please, let it be Janice Rogers Brown.
Short-term, this hurts. Long-term, it is a good thing for the President, Republicans running for reelection in the midterm, and the country.