President Obama on Wednesday will nominate Federal Reserve Vice Chair Janet Yellen to lead the U.S. central bank, officials said, selecting a renowned economist focused on combating unemployment for one of the most powerful positions in the world.
Yellen would become the first female chief of the nation’s central bank — or any major central bank. As Fed chairman, she would have vast power over the economy, and her record suggests that she would use it to continue for as long as possible a Fed stimulus program aimed at boosting growth. She would also be the top regulator of the nation’s financial system, an area in which less is known about her views.
Yellen, 67, who was chairman of the Council of Economic Advisers in the Clinton administration, would become the first Democrat to lead the Fed since Paul A. Volcker stepped down in 1987.
“Markets will be comfortable with a familiar face,” said Michael Feroli, chief U.S. economist at JPMorgan Chase.
“I think she will be pretty aggressive in pursuing full employment and be willing to tolerate moderate inflation risk,” he added, discussing how Yellen would balance the Fed’s twin objectives of promoting jobs and limiting inflation. But, he added, Yellen would be unlikely to allow inflation, or rising prices, to move much beyond the Fed’s 2 percent target.
Obama will announce Yellen’s nomination at the White House on Wednesday afternoon, and the two will be joined by outgoing Fed Chairman Ben S. Bernanke.
Bernanke, who has resisted officially announcing his departure until a successor is named, will have served eight consequential years. He presided over an unprecedented rescue of the financial system in 2008 and similarly unprecedented 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, which seek to drive down interest rates on mortgages and other loans even further.
Financial analysts expect Yellen to continue 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 extraordinary stimulus. That’s likely to happen later this year or early next, when the Fed scales back its bond-buying program.
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.
In coming years, managing the Fed’s exit from stimulus without causing the economy to 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 confirm her for the post. Republicans, however, are likely to express concerns about 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 style.
By contrast, Democrats 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 was a participant 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 at the Fed for more transparency 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 the questioning of lawmakers at hearings and the interrogation of reporters at Fed news conferences, while managing a policy committee of 19 officials who are often in disagreement with one another.
Most important, if history is any guide, Yellen will probably be called on at some point 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, as well as serving as a staffer at the Fed 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.
Neil Irwin contributed to this report.