Time to circle back to the ‘small woman with a large IQ’
Yellen has became the Fed front-runner by elimination
Under Janet Yellen, the committee built an internal consensus for changes. Photograph: Robert Galbraith/Reuters
Janet L Yellen told friends in recent weeks that she did not expect to be nominated as the next chairman of the Federal Reserve. Although she had been the Fed’s vice chairman since 2010 and would make history as the first woman to hold the job, President Barack Obama’s aides made clear throughout the summer that he wanted Lawrence H. Summers, his former chief economic adviser.
Now, awkwardly, it appears the president may have to circle back to Yellen after Summers withdrew from consideration Sunday, bowing to the determined opposition of at least five Senate Democrats. On Monday, Yellen became the front-runner by elimination, officials close to the White House said.
Supporters of Summers, including many of the president’s closest advisers, had raised some concerns about Yellen in recent months. Perhaps most potently, they said institutions benefited from fresh leadership and argued that Yellen’s crucial role in creating the Fed’s current policies could inhibit her ability to make necessary changes.
Some presidential advisers also argued that Summers brought crisis management experience and a working knowledge of financial markets that Yellen lacks – although so did Ben S Bernanke when President George W Bush selected him as chairman.
There have been tensions between Yellen and Daniel Tarullo, a Fed governor with close ties to the president’s economic team who has taken a leading role on issues of regulatory policy. Yellen also clashed with Gene B Sperling, head of the National Economic Council, when both were advisers to President Bill Clinton in the 1990s.
Nonetheless, the president’s advisers insisted throughout the summer that Obama was not averse to Yellen but simply more comfortable with Summers, a former Treasury secretary to Clinton who was Obama’s chief White House economic adviser through the height of the financial crisis and recession in 2009 and 2010. In those years he formed a bond with Obama and others in the White House despite a tendency toward arrogance.
Yellen’s supporters waited with a mixture of elation and apprehension for the president’s next step. Administration officials and supporters acknowledged that the president would enrage his party’s base if he were now to reject Yellen and forfeit the chance to name the first woman to the most influential economic job in the world.
On the other hand, with no obvious alternatives, the choice of Yellen - which months ago might have been celebrated as historic - is likely to be seen as Obama’s reluctant capitulation to his party’s left wing.
In the midst of the speculation that Obama might broaden his search, former Treasury Secretary Timothy F Geithner got word to the White House early Monday that he still was not interested in the Fed nomination that Obama had long made clear was his for the taking. Geithner’s stance is based on personal considerations, but as someone who was closely associated with Summers in the Clinton and Obama administrations, he would probably not be any more popular with the liberal groups emboldened by Summers’ exit.
Democrats said Yellen was likely to be confirmed by the Senate. Described by one former colleague as “a small lady with a large IQ,” Yellen forged an academic career at the University of California, Berkeley as a member of the economics counterculture that attacked the dogma of efficient markets. She has long argued that markets benefit from regulation to prevent abuses and limit disruptions of economic growth.
She also played a leading role in shaping what has become the conventional wisdom that central banks, for the sake of job growth, should seek to moderate rather than eliminate inflation.
Clinton nominated her to a seat on the Fed’s board of governors in 1994 and then made her head of his Council of Economic Advisers in 1997. She then returned to Berkeley and in 2004 became president of the Federal Reserve Bank of San Francisco, where she remained during the worst of the crisis before coming back to the Fed as vice chairman in 2010.
As vice chairman, she has alternated with Bernanke in representing the Fed at international meetings and she is widely respected by her peers at other central banks. She has overseen Washington’s relationship with the 12 regional reserve banks and has used the opportunity to cultivate the presidents of the regional Feds, five of whom vote each year on monetary policy.
Most important, she has led a committee devoted to improving the Fed’s communications with its primary audience, investors, and with the broader public, a goal she shared with Bernanke. Under Yellen, the committee built an internal consensus for changes, including Bernanke’s regular news conferences and the declaration that the Fed thinks 2 percent annual inflation is just right.
- (New York Times)