Mary F. Calvert for The New York Times
President Obama will nominate Janet L. Yellen as chairwoman of the Federal Reserve.
By JACKIE CALMES
Published: October 8, 2013 1 Comment
WASHINGTON — President Obama will nominate Janet L. Yellen as chairwoman of the Federal Reserve on Wednesday, administration officials said Tuesday night, ending an unusually public search to fill one of the most important economic policy-making jobs in the world.
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Mr. Obama’s first choice for the job — Lawrence H. Summers, a former adviser to the president — dropped outof the running on Sept. 15 in the face of opposition from Democratic senators.
Ms. Yellen, 67, who has been the Fed’s vice chairwoman since 2010, would be the first woman to run the central bank. A native of Brooklyn, she was previously president of the Federal Reserve Bank of San Francisco, a White House adviser, a Fed governor during the Clinton administration and a longtime professor at the University of California, Berkeley. Her four-year appointment as chairwoman must be confirmed by the Senate.
The most important decisions awaiting Ms. Yellen involve how quickly to wind down the expansionary monetary policy engineered by the current chairman, Ben S. Bernanke. Ms. Yellen worked closely with Mr. Bernanke, whose term ends on Jan. 31, in shaping and building support for that approach in an effort to stimulate the economy and bring down unemployment.
If anything, Ms. Yellen has wanted the Fed to take even more aggressive measures to lift economic growth, believing the risks of inflation are modest. But her views and Mr. Bernanke’s appear close enough that markets have considered her potential ascension as a sign of continuity at the Fed.
Mr. Bernanke, the Fed’s leader since 2006, announced last month that the central bank would postpone any retreat from its stimulus campaign for at least another month and possibly until next year, because of concerns about the economy. The move surprised economists and investors on Wall Street.
Mr. Bernanke — who has underestimated the economy’s weakness at several junctures during the last few years — said that although conditions were improving, the Fed still feared a turn for the worse. He has expressed concern that Congress is damaging the economy through budget brinkmanship and could cause more damage in the weeks to come.
Ms. Yellen, described by one former colleague as “a small lady with a large I.Q.,” forged an academic career at Berkeley as a member of the economics counterculture that attacked the dogma of efficient markets. She has long argued that markets benefit from regulation to prevent abuses and limit disruptions of economic growth.
The Fed’s two main tasks are helping to regulate the financial system and altering interest rates in response to economic growth and inflation. Regulating the financial system has become a much more important part of the Fed’s responsibilities in the wake of the financial crisis.
Many Democrats believe Ms. Yellen is likely to view Wall Street more skeptically than Mr. Summers, even though her views are closer to the centrist stance of the administration than to the positions of liberal Democrats on several regulatory issues. She is not, for example, a supporter of the push to break up large banks.
In the Senate, she is not likely to face much opposition from Democrats. Few Senate Republicans had taken a stance on her potential selection, although Republicans have frequently expressed concern that the Fed’s policies may destabilize financial markets and eventually accelerate inflation.
Republican senators have typically threatened to filibuster major bills and nominations in recent years, suggesting Ms. Yellen may need 60 votes — including a handful of Republican votes — to be confirmed. Democrats hold 52 seats in the Senate, and the chamber’s two independents often vote with the Democrats.
A decade ago, Ms. Yellen was one of the first public officials to describe rising housing prices as a bubble that might pop, with damaging consequences for the broader economy. Still, as president of the San Francisco Fed, she did not translate her concerns into actions that might have prevented some of the worst effects of the bubble.
But in the aftermath of the resulting recession, she accurately predicted that the recovery would be painfully slow and that there was little reason to worry about inflation, a view that led her to press for the Fed to expand its efforts to revive the economy. No Federal Reserve chairman has been as deeply steeped in both the theory and practice of central banking as she is.
Mr. Bernanke also brought a distinguished academic history of having studied the Fed, but he spent only a few years as a Fed governor before becoming chairman. Ms. Yellen has spent more than half of the last 20 years as a top Fed official.
Until recently, she was telling friends that she did not expect to be nominated because Mr. Obama had made it clear that he wanted Mr. Summers to the Fed job. But when Mr. Summers withdrew his name on Sept. 15, Ms. Yellen became the front-runner by elimination.
As speculation swirled about the appointment, much of the debate revolved not around economic policy but gender. Mr. Summers, while he was president of Harvard, oncewondered aloud whether inherent differences between men and women helped explain a lack of female science professors, causing some women’s groups to oppose his selection to lead the Fed.
Some Democrats also argued that Mr. Obama should not pass up the chance to break a glass ceiling, given Ms. Yellen’s qualifications and her position as the Fed’s second-ranking official. No woman has held one of the very top jobs in economic policy-making — Fed chairman or Treasury secretary — nor has a woman led any other major central bank in the world.
Mr. Summers’s supporters, including many of the president’s closest advisers, had raised some concerns about Ms. Yellen in recent months. Perhaps most potently, they said that institutions benefited from fresh leadership and argued that Ms. Yellen’s central role in creating the Fed’s current policies could inhibit her ability to make necessary changes.
Her supporters have praised her as self-effacing and keenly intelligent. “She makes an argument on the merits and she sticks with it,” said Alan S. Blinder, an economics professor at Princeton and former Fed vice chairman, who argued for her nomination. “And she’s good at articulating an argument in a way that doesn’t leave people on the other side hopping mad at her.”
President Bill Clinton nominated her to a seat on the Fed’s board of governors in 1994 — at the suggestion of Laura D’Andrea Tyson, a Berkeley friend and colleague of Ms. Yellen — and then named her head of his Council of Economic Advisers in late 1996. She later returned to Berkeley, and in 2004 became president of the San Francisco Fed, where she remained during the worst of the financial crisis before returning to the Fed as vice chairman in 2010.
Ms. Yellen, slight and white-haired, has a personal style that more closely resembles Mr. Bernanke’s soft-spoken manner than that of some previous Fed chairmen, like Paul Volcker. The force of her arguments can catch people by surprise.
Kevin Hassett, who was a staff economist at the Fed when Ms. Yellen arrived in 1994, recalled that she started to eat lunch regularly in the staff cafeteria to subvert the hierarchical system that limited communication between Fed governors and the vast army of research economists. “It showed a kind of grace and wisdom that is very unusual in Washington,” said Mr. Hassett, now a fellow at the right-leaning American Enterprise Institute.
Ms. Yellen, who attended Fort Hamilton High School in Bay Ridge, Brooklyn, and Brown University, has said that she became interested in economics as a way of thinking logically about how to help people. As a graduate student at Yale, she studied under the Nobel laureate James Tobin, a leading proponent of the view that governments could mitigate recessions.
She built an academic career at Berkeley together with her husband, the economistGeorge A. Akerlof, whom she met in a Fed cafeteria in the late 1970s when they were staff economists. Much of their work together highlighted flaws in the economic theory that markets operate efficiently, a theory that basically treats government policy as inherently costly. Their work showed that government, including central banks, could indeed adopt economic policies that improved people’s lives.
Colleagues and people familiar with their work said that Professor Akerlof, who shared the Nobel in economic science in 2001 with Joseph E. Stiglitz and A. Michael Spence, was the more creative thinker, while Ms. Yellen was the more rigorous.
Ms. Yellen’s confirmation will be part of an autumn filled with economic debates in Washington. The White House and Republicans in Congress will be also battling over a bill to continue financing the government and a bill to increase the nation’s borrowing limit to maintain the nation’s creditworthiness.
President Obama had also interviewed Donald L. Kohn, a former Fed vice chairman under Mr. Bernanke and a close adviser to Alan Greenspan — who preceded Mr. Bernanke as the chairman — for the top job. But most Fed analysts did not take his candidacy seriously.
Mr. Obama also seemed interested in considering his former treasury secretary, Timothy F. Geithner, for the job. But even after Mr. Summers withdrew, Mr. Geithner said he was not interested, based on personal considerations.
Ms. Yellen would be the first Democrat to run the Fed in almost 30 years. President Ronald Reagan appointed Mr. Greenspan, and President George W. Bush first named Mr. Bernanke.
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