Obama to nominate Janet Yellen to head Fed

Janet Yellen is a Fed veteran.
Janet Yellen is a Fed veteran.

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.

Obama’s first choice for the job — Lawrence H. 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 must be confirmed 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 S. 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.

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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 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.

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 following the financial crisis.


Many Democrats believe Yellen is likely to view Wall Street more skeptically than 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 that 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, 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 last 20 years as a top Fed official.

Until recently, she was telling friends that she did not expect to be nominated because Obama had made it clear he wanted Summers. But when Summers withdrew his name on Sept. 15, Yellen became the front-runner by elimination.

As speculation swirled about the appointment, much of the debate revolved not around economic policy but gender. Summers, while he was president of Harvard, once wondered 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 Obama should not pass up the chance to break a glass ceiling, given 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, nor has a woman led any other major central bank in the world.

Summers’ supporters had raised some concerns about Yellen in recent months. Perhaps most potently, they said that institutions benefited from fresh leadership, arguing that Yellen’s central role in creating the Fed’s current policies could inhibit her ability to make 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 University and former Fed vice chairman. “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 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 before returning to the Fed as vice chairman in 2010.