US President Barack Obama has nominated Fed number two Janet Yellen to run the world’s most influential central bank, providing some relief to markets that would expect her to tread carefully in winding down economic stimulus.
The nomination will put Yellen on course to be the first woman to lead the institution in its 100-year history. The advocate for aggressive action to stimulate US economic growth through low interest rates and large-scale bond purchases would replace Ben Bernanke, whose second term as Fed chairman expires on January 31.
If confirmed by the US Senate, which is expected to endorse her, she would provide continuity with the policies the Fed has established under Bernanke. Analysts say she would move cautiously in reining in policies in place to shore up the world’s largest economy.
Expectations that the Fed might start to taper its stimulus programme have roiled financial markets since May and the central bank shocked investors in September by maintaining its cash injections of $85 billion a month in full.
“Thank God Yellen will be nominated under the current circumstances. You don’t want a change at the central bank right now,” said Dan Fuss, a portfolio manager at Loomis Sayles in Boston. “This Yellen news is one uncertainty lifted from already nervous markets.”
US stock index futures rose and the dollar slipped on the news of Yellen’s pending nomination. The debt stand-off is fuelling expect-ations the Fed may delay any plans to reduce its stimulus for now.
If confirmed, she would join the Fed’s honour roll along with such household names as Paul Volcker and Alan Greenspan, predecessors as head of an institution that can influence the course of the world economy.
Obama turned to Yellen, 67, after his former economic adviser Lawrence Summers withdrew from consideration in the face of fierce opposition from within the President’s own Democratic Party, raising questions about his chances of congressional confirmation. The contest between Summers and Yellen played out all summer in a public way not usually associated with the selection of the top US central banker.
Yellen has enjoyed strong support from Democrats. In an unusual move, 20 Senate Democrats signed a letter earlier this year pressing Obama to turn to the former professor from the University of California at Berkeley.
Her Republican backing is much softer. Many Republicans worry Fed policy of holding overnight interest rates at zero and buying bonds aggressively to drive other borrowing costs lower could lead to asset bubbles and an unwanted pickup in inflation. Still, Yellen is expected to garner enough support to secure the 60 votes needed to overcome any procedural hurdles in the 100-seat Senate. Democrats control the chamber 54-46.
A respected economist whose research has taken her deep into theories of monetary policy, Yellen has earned a reputation as one of the Fed officials most worried about unemployment and least concerned about inflation.
Yellen studied economics at Yale University and taught at Berkeley for more than a decade before her first stint as a Fed board Governor from 1994 to 1997, a post she left to head President Bill Clinton’s Council of Economic Advisers.
She later served as president of the San Francisco Federal Reserve Bank, where her first-hand view of the overheated real estate market helped her see the dangers of the housing bubble earlier than many of her colleagues.
As Fed chair, Yellen would arguably be the most powerful woman in the world.