Obama to nominate Fed’s Janet Yellen to replace Bernanke
Yellen, who has been the Fed’s vice chairwoman since 2010, would be the first woman to run the central bank.
The New York Times
WASHINGTON — President Obama will nominate Janet 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 policymaking jobs in the world.
Obama’s first choice for the job — Larry Summers, a former adviser to the president — dropped out of the running Sept. 15 in the face of opposition from Democratic senators.
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 New York City, 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 is subject to confirmation by the Senate.
The most important decisions awaiting Yellen involve how quickly to wind down the expansionary monetary policy engineered by the current chairman, Ben Bernanke. Yellen worked closely with Bernanke, whose term ends Jan. 31, in shaping and building support for that approach in an effort to stimulate the economy and bring down unemployment.
If anything, Yellen has wanted the Fed to take even more aggressive measures to lift economic growth, believing that the risks of inflation are modest. But her views and Bernanke’s appear close enough that markets have considered her potential ascension as a sign of continuity at the Fed.
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.
Bernanke — who has underestimated the economy’s weakness at several junctures during the past 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.
Yellen, described by one former colleague as “a small lady with a large IQ,” 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.
A decade ago, 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.
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. Yellen has spent more than half of the past 20 years as a top Fed official.
Supporters have praised Yellen as self-effacing and keenly intelligent. “She makes an argument on the merits, and she sticks with it,” said Alan Blinder, an economics professor at Princeton University 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 Clinton nominated her to a seat on the Fed’s board of governors in 1994 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.
Yellen has a personal style that more closely resembles 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 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 Hassett, now a fellow at the right-leaning American Enterprise Institute.
Yellen, who attended Fort Hamilton High School in New York City, 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 University, 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 economist George 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 adopt economic policies that improved people’s lives.
Colleagues and people familiar with their work said that Akerlof, who shared the Nobel in economic science in 2001 with Joseph Stiglitz and A. Michael Spence, was the more creative thinker, while Yellen was the more rigorous.