Obama to nominate Yellen for Fed chair

President Barack Obama will nominate Janet Yellen to replace Ben Bernanke as chairman of the Federal Reserve, a White House official said Tuesday, in a move that many expect will result in a continuation of the central bank’s loose monetary policy.

Obama will introduce Yellen at a 3 p.m. Eastern ceremony at the White House Wednesday, the official said. Yellen currently serves as vice chairman of the central bank.

Stock futures /quotes/zigman/3102235 SPZ3 +0.24%   advanced Tuesday night after news of the impending nomination, following a session of sharp selling as the government shutdown continued.

If confirmed by the Senate, Yellen, 67, will be the first woman to run the Fed, one of the world’s most important economic posts.

 

Economists portray Yellen as a continuation of Bernanke’s aggressive easing stance developed in reaction to the financial crisis.
 

Many on Wall Street see Yellen as a “dove’ as she is a Democrat and supported asset purchases, otherwise known as QE, said Robert Brusca, chief economist at FAO Economics.
 

In general terms, a dove on the Fed is an official not strictly focused on fighting inflation.
 

“It is a label she’s going to have to live with and live down, but I don’t think it will be a big deal,” Brusca said.
 

The Fed pushed its short-term interest rate tool to zero in December 2008 and ever since has been using innovative asset purchases to try to foster stronger growth — to mixed success. The central bank is now buying $85 billion of bonds each month in an attempt to keep long-term interest rates low and provide support for the economy that has struggled in the wake of the severe financial crisis.

Yellen has been a strong supporter of the asset purchases.
 

These purchases and two earlier rounds of stimulus have swelled the Fed’s balance sheet to over $3.7 trillion.
 

The key challenge facing Yellen will be to try to scale back the asset purchases, shrink the balance sheet while keeping the economy on a self-sustaining growth path.
 

The International Monetary Fund on Tuesday urged the Fed to move cautiously and communicate clearly.
 

Interest rates jumped around the world in May after the Fed said it might begin to taper, or reduce the pace of its asset purchases. The Fed last month decided not to do that to the surprise of many in the market.
 

Like Bernanke, Yellen is a former academic expert on monetary policy who has eschewed politics. A former professor of economist at the University of California, Berkeley, Yellen is described by colleagues as non-ideological, well-prepared, and cautious.
 

Some economists had pushed aggressively for Yellen to get the post starting late in 2012.
  

“Anyone I know who has ever worked with or for Janet Yellen has nothing but the highest respect for her,” said Peter Ireland, an economics professor at Boston College.
 

“She was one of the only policy makers to warn about instability in the financial system in the years leading up to the financial crisis,” he said.
 

Obama was reportedly miffed by the public arm-twisting. It became clear that the president was mulling selecting Larry Summers, his former top economic adviser, for the top Fed job. But Summers, a former protégé of Robert Rubin, was forced to back out of the race after liberal Senate Democrats objected, citing the pair’s deregulatory zeal during the Clinton administration. Summers pushed Congress to repeal the Glass-Steagall act that had separated investment and commercial banks since the Great Depression. Some liberal Democrats in the Senate want to restore that law, blaming it for spurring the financial crisis.
 

Yellen came to the Fed in 1994 at the request of President Bill Clinton. She went to the White House to be chair of Clinton’s Council of Economic Advisers in 1997 but only lasted two years.
 

She moved back to Berkeley and rejoined the Fed in 2004 as president of the San Francisco Fed. In 2010, Yellen came back to Washington to take the number-two job at the board of governors.
 

Economists at Goldman Sachs predicted that Yellen would sail through the Senate confirmation process.
 

Sen. Tim Johnson, the Democrat from South Dakota who is chairman of the Senate Banking Committee, issued a statement Tuesday supporting Yellen’s nomination and promised to hold a confirmation hearing in a “timely manner.”
 

Sen. Bob Corker, a moderate Tennessee Republican on the Banking Committee, noted that he had voted against Yellen’s nomination to be Fed vice chair in 2010. “We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed,” said Corker in a statement .
 

Bernanke’s term expires on Jan. 31.
 

Yellen’s husband, George Akerof, is also a well-known economist, having won the 2001 Nobel prize for economics. He has credited Yellen for helping him win the prize.
  

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