“She doesn’t have a crystal ball, but what she does have is a keen understanding about how markets and the economy work, not just in tech but the real world,” Obama said. “She calls it like she sees it.”
With Yellen and outgoing chairman Ben S. Bernanke standing on either side of him, the president thanked Bernanke for his leadership during the darkest days of the global financial crisis and credited him with helping the nation avert the next Great Depression. Bernanke’s term ends on Jan. 31.
“He has truly been a stabilizing force, not just for our country but for the entire world,” Obama said.
Not only would Yellen become the first female chief of the nation’s central bank — or any major central bank — she would also be the first Democrat to hold the job since Paul A. Volcker stepped down in 1987. As Fed chairman, she would have vast power over the economy, and her record suggests that she would use it to continue the Fed stimulus program aimed at boosting growth for as long as possible.
“While we have made progress, we have farther to go,” Yellen said after the president spoke. “Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families. The Federal Reserve can help if it does its job effectively.”
Bernanke, who had resisted officially announcing his departure until a successor was named, will have served eight consequential years in the nation’s economic history. He presided over an unprecedented rescue of the financial system in 2008 and similarly extraordinary steps to try to get the economy growing faster in the years since then.
Today, those efforts continue — with a commitment to keep short-term interest rates near zero for several more years, as well as an $85 billion-per-month program of bond purchases in an effort to drive down interest rates on mortgages and other loans even further.
Financial analysts expect Yellen, who is currently in the No. 2 spot as vice chairwoman at the Fed, to maintain the approach set forth by Bernanke. But her nomination will coincide with a new chapter in the Fed’s history.
With the unemployment rate at 7.3 percent, some Fed officials, as well as outside economists, say it soon will be time for the central bank to begin winding down its stimulus. Many economists had assumed that the Fed would begin doing so last month, but officials decided to wait when financial markets showed intense concern over Fed policy. According to minutes of last month’s policy committee meeting, most members indicated that they could still pull back on the bond purchases later this year and end the program in 2014.
Since that meeting, a budget stalemate has caused a federal government shutdown, and the hyper-tense debate over raising the nation’s borrowing limit has stirred anxiety over a potential U.S. default on its debt.
In coming years, managing the Fed’s exit from stimulus without causing a slump is likely to be a difficult — and, in many ways, unprecedented — challenge, given the wide scope of the central bank’s role in the economy today.
Yellen is not expected to face any significant opposition in the Senate, which must vote on her confirmation for the post. Republicans, however, are likely to express concerns over whether she is adequately committed to the Fed’s goal of curbing inflation.
Republicans and conservative-leaning economists have warned that the Fed’s easy-money policies could unleash inflation and undermine the dollar, though there hasn’t been any evidence to date of either of those happening.
“I voted against Vice Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy,” Sen. Bob Corker (R-Tenn.), a member of the Senate Committee on Banking, Housing and Urban Affairs, said Tuesday night. “We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed.”
The White House had clearly signaled that Yellen would be the nominee after Harvard professor Lawrence Summers, a former Obama economic adviser, withdrew his name from consideration last month.
Summers, whom people close to the White House said the president favored, decided to pull out after a vociferous reaction by liberal Democrats, who disliked his record on financial regulation and what they viewed as an uncivil leadership style.
Democrats, however, were effusive about Yellen’s nomination.
“Today is a historic moment for the Federal Reserve, for women everywhere and for all of us who care about job creation,” said another banking committee member, Sen. Sherrod Brown (D-Ohio), who had advocated for Yellen. “Governor Yellen will work to prevent future bailouts, boost our housing markets and give the Fed’s mandate to maximize employment the attention it deserves.”
Since the 1990s, Yellen has alternated among jobs at the Fed, the White House and her academic home, the University of California at Berkeley. She was president of the Federal Reserve Bank of San Francisco from 2004 to 2010, when she warned about looming dangers in the real estate market and had a role in the Fed’s crisis response.
Obama picked her to serve as Fed vice chairman under Bernanke. In that post, she has been a key force, pushing Bernanke and the rest of the Fed to embrace more aggressive policies to reduce unemployment.
Additionally, Yellen has been in charge of a major effort by the Fed to be more transparent through clearer communications of the bank’s intentions and thinking.
A Fed chief has responsibilities beyond being the nation’s top economist — and there is no experience that can fully prepare someone for the role. The chairman must deftly navigate lawmakers’ questioning at hearings and reporters’ interrogation at Fed news conferences, while managing a policy committee of 19 officials who often disagree with one another.
Most important, if history is any guide, Yellen will probably be called on to be the first responder in a financial crisis — the toughest proving ground for any Fed chairman.
“Her experience as vice chair, and previously as president of the San Francisco Federal Reserve, makes her an incredibly qualified nominee,” said Sen. Jeff Merkley (D-Ore.).
Yellen, whose academic speciality focused on the labor market, also has worked at the London School of Economics and as a professor at Harvard University and served on the Fed staff in the late 1970s. She received an undergraduate degree from Brown University and a doctorate in economics from Yale University.
Yellen was born in Brooklyn and is married to Nobel Prize-winning economist George Akerlof. They have a son, Robert, who is also an academic economist.