Yellen to be named by Obama first female Fed chair

President Barack Obama will nominate Janet Yellen as chairman of the Federal Reserve, which would put the world's most powerful central bank in the hands of a key architect of its unprecedented stimulus program and the first female leader in its 100-year history. Obama will announce the nomination at 3 p.m. Wednesday in Washington, a White House official said in an e-mailed statement. Ms. Yellen, 67, would succeed Ben S. Bernanke, whose term expires Jan. 31. Obama turned to Ms. Yellen, vice chairman of the Fed since 2010, after the other leading candidate, former Treasury secretary and White House economic adviser Lawrence Summers, withdrew from consideration amid mounting opposition from Democrats on the Senate Banking Committee. “She's an excellent choice, and I believe she'll be confirmed by a wide margin,” Charles Schumer of New York, the Senate's No. 3 Democrat, said in a statement. Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, pledged to work “to move her nomination forward in a timely manner,” saying her depth of experience is unmatched.

Asia reactions

In Asia, Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, welcomed Yellen's nomination, predicted that she won't rush to exit easing, and expressed concern that prolonged U.S. stimulus could strengthen the yen and impede Japan's recovery. South Korea's finance ministry said Ms. Yellen will weigh the effects on other nations of tapering bond buying. International Monetary Fund Managing Director Christine Lagarde looks forward to a female joining the ranks of central bank governors and will “no longer feel as lonely” at some male-dominated meetings, IMF spokesman Gerry Rice said. The president's choice followed a polarizing and unprecedented public contest for a nomination that Obama described in August as one of the most important decisions of his presidency. Ms. Yellen was the favorite in surveys of economists and had the backing of 20 members of the Senate Democratic caucus who signed a July 26 letter to Obama.

Driving force

As a top deputy to Bernanke, Ms. Yellen supported the central bank's unprecedented bond buying programs and was a driving force behind a new strategy adopted in 2012 to commit the central bank to goals on inflation and unemployment. “It's hard to imagine a better choice by virtue of intelligence, temperament, demonstrated good judgment, understanding of the Fed, and extensive experience,” said Alan Blinder, a Princeton University professor and former Fed vice chairman. “She should make a great Fed chair.” Summers also welcomed the decision, saying that “Janet Yellen is a terrific choice to lead the Federal Reserve. I have admired and learned from her ever since she taught my first macroeconomics graduate class in 1976,” he said in an e-mail. As the Fed's No. 2 official, she has articulated the case for maintaining highly accommodative monetary policy. In a series of 2012 speeches, she outlined why interest rates could remain near zero into late 2015, and in a 2011 speech she justified the Fed's first two rounds of large-scale asset purchases with an estimate that the programs would create 3 million jobs.

More experience

“She's even more of a dove than Bernanke is, but there's nobody who can say she's not credentialed because of the range of experience she's got,” said J. Alfred Broaddus, a former president of the Federal Reserve Bank of Richmond who debated Ms. Yellen over the Fed's mandates during the 1990s. “She has experience that almost nobody else can bring to the table at this point.” Among Ms. Yellen's tasks, if confirmed, will be to execute the unwinding of the Fed's record monetary stimulus. Bernanke has said the central bank won't end monthly bond purchases until the labor market shows sign of substantial improvement. The Fed has also announced plans to hold short-term interest rates near zero until the unemployment rate reaches at least 6.5 percent. “She comes from inside the Fed, so is experienced,” former European Central Bank President Jean-Claude Trichet told Bloomberg in Paris Tuesday. “She has all the qualities needed to make a great Fed president.”

Clinton administration

A member of the Fed's Board of Governors and chairman of the White House Council of Economic Advisers during the Clinton administration, Yellen later was president of the Federal Reserve Bank of San Francisco before Obama nominated her to the No. 2 job at the Fed in 2010. As Fed vice chairman, Yellen's attentiveness to the district Fed presidents proved invaluable in building consensus on policy issues. When the Federal Open Market Committee gathers in Washington for monetary policy decisions, Yellen often has breakfast with one district bank president, then sits down with another, before the meeting starts in the morning, her appointment calendars show. That familiarity with her colleagues would probably make her an adept manager of the central bank, said Robert Eisenbeis, a former Atlanta Fed research director.

Understands culture

“She's steeped in the culture,” said Eisenbeis, now chief monetary economist at Cumberland Advisors in Sarasota, Florida. “Nobody understands the culture from the many perspectives that she's had.” She took control of a subcommittee focused on the Fed's communication challenges. For years, policy makers on the FOMC had been unable to agree to holding press conferences or spelling out goals for inflation and unemployment. Yellen's subcommittee met almost as often as the FOMC -- 15 times in person and via telephone in 2011 and 2012 -- according to her calendars. The meetings culminated in a breakthrough in policy: A January 2012 statement that committed the central bank to achieving inflation of 2 percent in the longer term and spelled out a goal of 5.2 percent to 6 percent for the unemployment rate. Yellen earned her Ph.D. in economics at Yale University in New Haven, Connecticut, studying under future Nobel laureates James Tobin and Joseph Stiglitz. She graduated in 1971 and became an assistant professor at Harvard University in Cambridge, Massachusetts. Her road to the top of the central bank began in 1976 after she failed to get tenure at Harvard. She moved to Washington and took a job as a staff economist in the Fed's division of international affairs.

Labor analysis

There she met her husband, George Akerlof, and together they went to the London School of Economics and then the University of California at Berkeley. They specialized in the labor market and were co-authors of more than a dozen papers that delved into the mechanics of how people switch jobs and what it means when workers perceive their wages as unfair. In 1994, Yellen and Akerlof's career paths diverged. While he went on to win the Nobel Prize in Economics, Yellen was appointed by President Bill Clinton to the Fed's board of governors. She served as the chairman of Clinton's Council of Economic Advisers from 1997 to 1999, a period of economic boom when the unemployment rate was under 5 percent, the U.S. was running budget surpluses and Yellen was making speeches on a strategy to use the savings to help shore up Social Security. Yellen returned to Berkeley in 1999, leaving again in 2004 to become president of the San Francisco Fed.

Policy continuity

“She assures continuity on the one hand and on the other hand is exquisitely qualified,” said Nathan Sheets, chief international economist at Citigroup Inc. in New York, who previously served as the top international economist at the Fed. “I don't know if there's ever been a Federal Reserve chairman with a broader set of credentials.” When Yellen became vice chairman of the Fed in 2010, she passed the Senate Banking Committee with a vote of 17-6, providing a preview of what her confirmation process could look like. There are 12 Democrats and 10 Republicans on the Banking Committee. Senator Bob Corker, one of the top Republicans on the banking committee, said Yellen's record will come under scrutiny. “I voted against Vice Chairman Yellen's original nomination to the Fed in 2010 because of her dovish views on monetary policy,” Corker, of Tennessee, said in a statement. “We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed.”

Property risks

Yellen became San Francisco Fed president in June 2004, well before house prices collapsed. Home prices were rising at an annual pace of more than 15 percent from May 2004 to December 2005, according to the Case-Shiller (SPCS20Y%) index of home prices in 20 cities. Transcripts from meetings of the central bank in 2007, not released until earlier this year, show that Yellen was among the first Fed policy makers to warn how severe the housing situation was becoming.

Gorilla in the room

At the May 2007 FOMC meeting, Yellen expressed concern that the Fed staff's forecast was too optimistic on home prices. The forecast “assumes that national house prices are flat going forward,” she said. “I am worried that they may actually fall.” At the next meeting, on June 27-28, Yellen said the biggest risk to economic growth was housing, which she called the “600-pound gorilla in the room.” “The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst,” Yellen said. “Rising defaults in subprime could spread to other sectors of the mortgage market and could trigger a vicious cycle.” (Bloomberg News)