But on Wednesday, Yellen arrived at the White House again, this time as the president’s pick to lead the institution charged with setting the course for the nation’s economy. Her nomination is partly the result of a political miscalculation that turned Obama’s top choice into a flash point within his party.
Throughout the controversy, Yellen remained quiet rather than lobbying her case. Her supporters said she has studiously avoided politics and is adamant about the central bank’s independence. At times they were frustrated by her refusal to promote herself for the position, and she rejected offers from others to make her case before lawmakers and the administration — even as her future grew cloudy.
While friends say this trait is a testament to the quiet persistence that will define Yellen’s leadership style, others worry it will hamper her ability to navigate the central bank’s increasingly fractious relationship with Capitol Hill.
She will have to defend the Fed’s continued use of extraordinary measures to boost the economy to Republican lawmakers who have grown increasingly concerned about the central bank’s easy-money policies. The Fed has also come under fire for delays in implementing a financial regulatory overhaul passed by Congress three years ago. And she faces the complicated task of unwinding those stimulus programs while ensuring the recovery does not falter.
“Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families,” Yellen said Wednesday in accepting the nomination. “The Federal Reserve can help if it does its job effectively.”
In the small world of Fed watchers, Yellen had long been considered the logical choice to run the central bank. She is a respected academic economist formerly based at the University of California at Berkeley who also served as head of President Bill Clinton’s Council of Economic Advisers. She did a stint with the Fed’s Board of Governors in Washington and led the Federal Reserve Bank of San Francisco. In 2010, Obama tapped her to become vice chairman of the central bank, and she emerged as a key supporter of its controversial efforts to jump-start the recovery.
But Yellen remained largely unknown in political circles and among business leaders. Though Treasury Secretary Jack Lew and the current chairman of the Council of Economic Advisers, Jason Furman, privately spoke highly of her, she was not an established member of Obama’s tightknit brain trust. Her chief rival was the president’s former economic adviser, Lawrence H. Summers, who came from that group.
“This was messy for a Fed chair nomination, and I hope it will never happen again,” said former Fed vice chairman Alan Blinder, a professor at Princeton University and a close friend of Yellen’s.
A Fed spokeswoman declined to comment for this article. A number of people familiar with the nomination process spoke on the condition of anonymity to discuss private conversations.
Summers was a highly visible member of the administration during Obama’s first term and the architect of his signature stimulus plan. In contrast, Yellen’s lack of public standing was at times interpreted as a lack of ability. According to one supporter, several corporate executives unfamiliar with her work were questioning her experience as late as midsummer.
“Who is Janet? Is she serious enough? We don’t know anything about her. We know Larry. He’s tough and decisive,” the person recalled the executives saying. “There was kind of a lack of knowledge and therefore an assumption that the lack of knowledge carried import about her capabilities. I thought, ‘Wow, this is really not good.’ ”
In August, Yellen attended the Kansas City Fed’s annual conference in Jackson Hole, Wyo., with no speaking role, and told friends that she was pessimistic about her chances of getting the top job. Summers vacationed on Cape Cod, hanging out with longtime friends from the Obama years, playing tennis and golf and helping his wife prepare for the poetry class she taught. The expectation was that sometime in September, Obama would nominate him to be Fed chairman.
Yellen turned down at least two offers to reach out to Capitol Hill and the administration on her behalf, according to those close to her. At one point, House Minority Leader Nancy Pelosi (D-Calif.) suggested that Yellen’s allies with political connections send a letter to Obama touting her qualifications, according to a person with knowledge of the request. But the idea was nixed as too aggressive: The nomination should be the president’s prerogative.
As the summer progressed, friends say, Yellen considered herself the underdog and prepared herself for the possibility of returning to Berkeley. Though she was personally unfazed by the debate, several people said, she worried that the contentious nomination process could undermine the Fed’s credibility, or at least damage its reputation as a politically independent institution. And they said she did not want the fact that she is a woman to become part of the discussion, whether she got the job or not.
“It is terrific that she’s a woman. It’s a wonderful thing,” said Laura D’Andrea Tyson, a professor at Berkeley who recruited Yellen to the university and later recommended her to serve on the Fed’s Board of Governors in the 1990s. “On the other hand, she merits this on experience and on education and on ability, and that’s what it’s about.”
The debate caught the attention of Heidi Hartmann, president of the Institute for Women’s Policy Research. Hartmann, an economist who is not close to Yellen, said she has been repeatedly frustrated by a lack of women in the field. That concern was amplified by media coverage suggesting a Summers nomination was a done deal.
“I thought it was crowding her out of the marketplace,” Hartmann said. “I felt here was a supremely qualified woman who deserves a job. I sort of suspected that a lot of economists felt the same way.”
She said she searched feminist economic discussion groups online for a way to support Yellen but came up empty-handed. So she decided to start her own effort, enlisting help from Tyson and other prominent Yellen allies, including Blinder, former Obama economic adviser Christina Romer and Nobel laureate Joseph Stiglitz. Their letter to the White House went public with a dozen signatures in early September, the day after the Senate returned from recess. Two weeks later, it boasted 505 names.
The drawn-out nomination process not only gave Yellen’s supporters time to make their case but also allowed Democratic opposition to Summers to coalesce. One of his chief critics was Sen. Jeff Merkley (D-Ore.), who had sparred with Summers during Obama’s first term over the inclusion of foreclosure relief in bailouts for the nation’s banks, and the “Volcker Rule,” which prohibits banks from making certain kinds of speculative investments.
Merkley polled his Democratic colleagues on the Senate banking committee in the second week of September about their stance on Summers, according to a Senate aide. In caucus meetings, he argued that Summers’s support for bank deregulation in the 1990s should disqualify him for a job as one of the nation’s top financial overseers. In addition to Merkley, Democratic Sens. Elizabeth Warren (Mass.), Sherrod Brown (Ohio), Jon Tester (Mont.) and Heidi Heitkamp (N.D.) were expected to oppose Summers — crippling his nomination in the committee.
Merkley called the White House on Sept. 13 while attending the Pendleton Round-Up rodeo in Oregon to deliver the news. Two days later, Summers withdrew his name from consideration.
On Wednesday, Yellen stood on Obama’s left, smiling broadly as the president officially nominated her to lead the Fed, calling her a proven leader and a champion for American workers. Yellen then stepped onto a box and read from a prepared statement:
“Mr. President, I’m honored and humbled by the faith that you’ve placed in me.”