Push for Yellen to lead at Fed gaining steam

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WASHINGTON -- Janet Yellen told friends in recent weeks that she did not expect to be nominated as the next chairman of the Federal Reserve. Although she had been the Fed's vice chairman since 2010 and would make history as the first woman to hold the job, President Barack Obama's aides made clear throughout the summer that he wanted Lawrence Summers, his former chief economic adviser.

Now, awkwardly, it appears the president may have to circle back to Ms. Yellen after Mr. Summers withdrew from consideration Sunday, bowing to the determined opposition of at least five Senate Democrats. On Monday, Ms. Yellen became the front-runner by elimination, officials close to the White House said.

Supporters of Mr. Summers, including many of the president's closest advisers, had raised some concerns about Ms. Yellen in recent months. Perhaps most potently, they said institutions benefited from fresh leadership and argued that Ms. Yellen's crucial role in creating the Fed's current policies could inhibit her ability to make necessary changes.

Some presidential advisers also argued that Mr. Summers brought crisis management experience and a working knowledge of financial markets that Ms. Yellen lacks -- although so did Ben Bernanke when President George W. Bush selected him as chairman.

More recently, there have been tensions between Ms. Yellen and Daniel Tarullo, a Fed governor with close ties to the president's economic team who has taken a leading role on issues of regulatory policy. Ms. Yellen also has a history of strained relationships with some of the president's economic advisers, notably Gene Sperling, head of the National Economic Council, with whom she clashed in the 1990s.

Nonetheless, the president's advisers insisted throughout the summer that Mr. Obama was not averse to Ms. Yellen but simply more comfortable with Mr. Summers, a former Treasury secretary to President Bill Clinton who was Mr. Obama's chief White House economic adviser through the height of the financial crisis and recession in 2009 and 2010. In those years, he formed a bond with Mr. Obama and others in the White House despite a tendency toward arrogance.

Ms. Yellen's supporters waited with a mixture of elation and apprehension for the president's next step.

"Janet Yellen, I hope, will make a terrific Federal Reserve chair," Sen. Elizabeth Warren, D-Mass., who was one of those warning the White House against a Summers nomination, said on MSBNC. "The president will make his decision, but I hope that happens."

Administration officials and supporters acknowledged that the president would enrage his party's base if he were now to reject Ms. Yellen and forfeit the chance to name the first woman to the most influential economic job in the world. On the other hand, with no obvious alternatives, the choice of Ms. Yellen -- which months ago might have been celebrated as historic -- is likely to be seen as Mr. Obama's reluctant capitulation to his party's left wing.

Democrats on Capitol Hill said Ms. Yellen would most likely get confirmed by the Senate. Mr. Summers' supporters had raised concerns about her, mostly along the lines of institutions benefiting from new leadership.

Described by one former colleague as "a small lady with a large IQ," Ms. Yellen forged an academic career at the University of California, 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.

She also played a leading role in shaping what has become the conventional wisdom that central banks, for the sake of job growth, should seek to moderate rather than eliminate inflation.

Mr. Clinton nominated her to a seat on the Fed's board of governors in 1994 and then made her head of his Council of Economic Advisers in 1997. She then returned to Berkeley and in 2004 became president of the Federal Reserve Bank of San Francisco, where she remained during the worst of the crisis before coming back to the Fed as vice chairman in 2010.

Ms. Yellen, known as a careful thinker with a self-effacing manner, did not see the job as an audition for anything larger, according to friends. But her role in making the case for the Fed to take stronger action to reduce unemployment won her wide notice among liberal Democrats. In addition, women's groups yearned for a woman to lead the Fed for the first time.

As vice chairman, she has alternated with Mr. Bernanke in representing the Fed at international meetings and she is widely respected by her peers at other central banks. She has overseen Washington's relationship with the 12 regional reserve banks, and has used the opportunity to cultivate the presidents of the regional Feds, five of whom vote each year on monetary policy.

Most important, she has led a committee devoted to improving the Fed's communications with its primary audience, investors, and with the broader public, a goal she shared with Mr. Bernanke. Under Ms. Yellen, the committee built an internal consensus for changes, including Mr. Bernanke's regular news conferences and the declaration that the Fed thinks 2 percent annual inflation is just right.



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