Obama to nominate Janet Yellen to lead Federal Reserve
WASHINGTON — President Obama will nominate Janet L. Yellen to be the next head of the Federal Reserve, the White House said Tuesday. If confirmed, the former UC Berkeley economist would become the first woman to lead the world’s most powerful central bank in its 100-year history.
Yellen, the Fed’s vice chair, would replace Ben S. Bernanke, whose second four-year term as chairman expires Jan. 31. She would take over at a crucial time as the central bank prepares to reduce its unprecedented support for the economy while trying to avoid damaging the still-fragile recovery.
Fed policymakers, including Yellen, had been expected to begin reducing one of the central bank’s key stimulus programs in September. But they decided that the economy, particularly the labor market, was not yet strong enough for the Fed to start reducing its monthly purchases of $85 billion in bonds. The bond purchases, started in September 2012, have been designed to lower mortgage rates and other long-term interest rates.
Obama is scheduled to announce the nomination at the White House on Wednesday afternoon, joined by Yellen and Bernanke.
The Fed’s leadership and policy signals are being closely watched around the world, especially in developing economies where many fear that if the central bank pulls back too rapidly on its economic stimulus efforts or communicates its plans poorly, global financial markets and the flow of capital could be badly disrupted.
Analysts and investors had been expecting Yellen’s appointment after the president’s other top choice, former Treasury Secretary Lawrence H. Summers, withdrew from the running in September in the wake of mounting opposition, particularly among liberal Democrats. The choice of the 67-year-old economist culminates an unprecedented public campaign on her behalf that included letters from members of Congress as well as extensive lobbying by economists.
Because investors already viewed Yellen as the favorite for the job, the news seemed unlikely to have a major effect on markets. Stocks had jumped after Summers withdrew his name for the post, reflecting the expectation that Yellen would be more likely than Summers to prolong the Fed’s stimulus programs.
The fact that a Yellen appointment signals continuity led analysts in Asia to say that investors there would probably welcome the decision.
With Yellen, “the consensus view is that there will be better continuity with the Bernanke Fed,” said Tim Condon, head of research for ING Financial Markets in Singapore. “Given the uncertainty in the U.S. government, there will be relief in that at least in this area, the uncertainty will be lifted,” he added.
Obama will make his announcement as scores of central bankers and finance ministers from around the globe have come to Washington for annual meetings of the International Monetary Fund and the World Bank.
At a time when the government shutdown and the dispute over raising the debt ceiling have enmeshed the White House in a stalemate with Congress, the Fed appointment will allow the president to show that he is “exerting authority on the management of the economy,” said Domenico Lombardi, a scholar at the Center for International Governance Innovation, based near Toronto, who is in Washington for the meetings.
“Clearly the news is not going to go unnoticed,” he said.
In the Senate, Yellen already has considerable support among the Democratic majority and is expected to be confirmed. She will, however, probably face resistance from some Republican senators who have opposed the Fed’s easy-money policies in recent years. She would be the first Democrat to head the Federal Reserve since Paul Volcker retired in 1987.
Senate Banking Committee Chairman Tim Johnson (D-S.D.), whose panel will conduct Yellen’s confirmation hearings, said she has “a depth of experience second to none.”
But Republican Sen. Bob Corker of Tennessee, also a member of the Banking Committee, indicated the sort of resistance Yellen may face on the GOP side.
“I voted against Vice Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy,” he said in a statement Tuesday night, referring to her support for steps to keep interest rates low and her willingness to tolerate some amount of inflation in order to lower unemployment levels.
“We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed,” Corker said.
A Brooklyn native who spent much of her career between the Fed and UC, Yellen began teaching at Berkeley in 1980, served on the Fed board of governors under Chairman Alan Greenspan from 1994-97, chaired President Clinton’s Council of Economic Advisors from 1997-99 and returned to Berkeley before being named president of the Federal Reserve Bank of San Francisco in 2004.
Despite her popularity among many economists and members of Congress, Yellen may face tough questioning about her time as president of the San Francisco Fed, a period when she also was involved in the central bank’s monetary policy decisions. Yellen raised early concerns about the risks banks were taking during the subprime housing boom, but like most economists, she did not foresee real estate’s disastrous crash, which triggered the worst economic downturn since the Great Depression.
As the Fed’s vice chair, Yellen has been a staunch supporter of Bernanke as he has gone to extraordinary lengths to stimulate the tepid recovery. But Bernanke has been subjected to intense criticism and scrutiny over the central bank’s policies, with opposition from many Republicans as well as some populist Democrats. Bernanke, a Republican, was confirmed in a 70-30 vote in 2010 for his second term as chairman. It was the narrowest victory margin for a Fed chief in the central bank’s history.
Under Bernanke, the Fed has kept its benchmark short-term interest rate near zero since late 2008. The central bank’s balance sheet, or asset holdings, have quadrupled since mid-2008 to $3.7 trillion as the Fed has bought Treasury bonds and mortgage-backed securities to pump money into the financial system.
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