President Obama on Wednesday will nominate Janet Yellen, a loyal lieutenant of Federal Reserve Chairman Ben S. Bernanke and an economist dedicated to improving the nation’s job prospects, to become the first woman to head the century-old central bank.
She will be nominated while the White House and congressional Republicans remained locked in a monumental battle over the nation’s debt limit, which is roiling global markets and depressing an already tepid economic recovery. That creates a particularly challenging economic environment to inherit when Mr. Bernanke retires at the end of January.
The threat to economic growth from the budget standoff likely was a factor swaying the president to forward the nomination long urged by liberals in his own party, who preferred Ms. Yellen and her commitment to increasing employment over the seemingly more hawkish views of former White House economic adviser Lawrence H. Summers, Mr. Obama’s first choice for the job. Mr. Summers cited opposition from Senate liberals and the brewing confrontation with Congress over the budget in withdrawing from the running last month.
Because Ms. Yellen was the preferred candidate of more than a third of the Senate’s Democrats, her nomination likely faces smooth sailing, although her liberal views supporting Mr. Bernanke’s use of extraordinary and unconventional Fed powers to juice the economy rankle many Republicans.
Republicans have not openly opposed the nomination and are not expected to try to derail it, but some may be tempted to delay it or view it as a strategic bargaining chip in the budget standoff with the White House.
Senate Democrats had only praise for Ms. Yellen. “She’s an excellent choice and I believe she’ll be confirmed by a wide margin,” said Sen. Charles E. Schumer, New York Democrat.
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“Today is a historic moment for the Federal Reserve, for women everywhere, and for all of us who care about job creation,” said Sen. Sherrod Brown, Ohio Democrat, who spearheaded the campaign for Ms. Yellen in the Senate. He called Ms. Yellen a “consensus builder” whose diplomatic skills will be needed to lead a Fed that has been sharply divided between those who support Mr. Bernanke’s easing tactics and those who strongly question them.
Despite likely ideological opposition from some Senate Republicans, the nomination is supported by Ms. Yellen’s long and distinguished resume — including 11 years as the Fed’s vice chairman, a board governor during the Clinton administration and president of the Federal Reserve Bank of San Francisco — making her one of the best-qualified candidates to ever lead the Fed. Ms. Yellen also served as chairman of President Clinton’s Council of Economic Advisers for two years and is an emeritus professor at the University of California at Berkeley.
Mr. Obama has said that the turmoil engulfing Washington shouldn’t prevent the replacement of Mr. Bernanke, who made it plain that he was seeking retirement after an exhausting eight-year tenure during one of the most tense, controversial and historic eras for the Fed.
The Bernanke era has been marked by the Fed’s first-ever bailouts of a multitrillion dollar corporation, American International Group Inc., and its first-ever purchases of long-term Treasury bonds and mortgage securities, in an effort that since 2010 has sought to nurture the recession-ravaged economy back to health.
Despite accumulating holdings of nearly $3.5 trillion during the campaign, the easing efforts have produced only feeble economic results while stoking fear in some quarters that the Fed is feeding another bubble in financial markets, including the U.S. stock and bond markets.
Ms. Yellen has staunchly allied herself with Mr. Bernanke as he insisted that the Fed had to act aggressively to prevent the Great Recession of 2007 to 2009 from becoming another Great Depression. It was fitting that Mr. Bernanke, a noted Princeton scholar of the Depression, made his mark trying to prevent mistakes of the Fed during the 1930s that worsened the economy and left millions of Americans impoverished and unemployed.
Ms. Yellen strongly backed Mr. Bernanke’s moves despite an unprecedented level of criticism from Republicans in Congress. If she is confirmed to lead the Federal Reserve, one of her first orders of business would be to slowly unwind the Fed’s extensive holdings in the Treasury and mortgage markets.
The Fed this summer signaled its desire to go back to more normal interest rate policies in the months ahead, although Fed watchers increasingly believe that the budget stalemate this fall will stall the economy and deter the Fed from taking any action to withdraw its support this year.
Mr. Bernanke and Ms. Yellen have defended the Fed’s loose money policies as necessary to bring the nation’s unemployment rate back to a more normal range of about 6.5 percent and to try to spur job opportunities for the record number of Americans who remain unable to find work after four years of economic recovery.
“The person I’m going to end up appointing will be someone who reflects the Fed’s dual mandate” to keep inflation and unemployment low, Mr. Obama told CNBC this month.
• Patrice Hill can be reached at phill@washingtontimes.com.
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