Washington, Oct. 9: President Barack Obama nominated Janet L. Yellen as the US Federal Reserve chairwoman, one of the most important economic policy-making jobs in the world.
The nomination will put Yellen, 67, on course to be the first woman to lead the world’s most influential central bank in its 100-year history. She will also be the first woman to head a central bank in any Group of Seven industrial nation.
The elevation of Yellen, who has been the Fed’s vice-chairwoman since 2010, will provide some relief to global markets, including that in India, which will expect her to tread carefully in winding down the US economic stimulus.
The mere mention in May that the Fed could soon begin to ease up on its monthly purchases had sent global financial markets reeling.
The White House said today that Yellen would be one of the most qualified candidates for the job in history.
But a section of the Republicans in the Senate, whose endorsement is needed for Yellen to take over, voiced strong reservations and signalled potentially significant opposition to her confirmation.
Yellen will be the first Democrat to run the Fed in almost 30 years. In the Senate, Obama’s Democrats control 54 of the 100 seats.
An advocate for aggressive action to stimulate US economic growth through low interest rates and large-scale bond purchases, Yellen will replace Fed chairman Ben Bernanke, whose second term ends on January 31.
If confirmed by the Senate, she is expected to provide continuity with Fed policies under Bernanke. She is likely to move cautiously in reining in policies in place to shore up the world’s largest economy.
Yellen is more on the side of fighting unemployment. Unlike some other members of the board who think that the policy tools do not allow Fed to fight joblessness, Yellen feels that the central bank has a role to play in reducing unemployment.
Such a view should spread cheer in emerging economies like India as she is likely to keep the policy rate of interest low. If that happens, dollars will continue to flow to the emerging markets.
Yellen’s nomination was widely expected, but she was not thought to be Obama’s first choice for the job. For months, the speculation was that the President would nominate Lawrence H. Summers, a former adviser to Obama.
But Summers dropped out of the running on September 15 in the face of opposition from Democratic senators. Some in the administration blamed Yellen advocates for churning up the opposition to Summers.
As speculation swirled about the appointment, much of the debate revolved not around economic policy but gender.
Summers, while he was president of Harvard, wondered aloud whether inherent differences between men and women helped explain a lack of female science professors, causing some women’s groups to oppose his selection to lead the Fed. But within the White House, women were among his biggest supporters.
Some Democrats also argued that Obama should not pass up the chance to break a glass ceiling.
Summers’s supporters, including many of the President’s closest advisers, had raised some concerns about Yellen in recent months. Perhaps most potently, they said that institutions benefited from fresh leadership and argued that Yellen’s central role in creating the Fed’s current policies could inhibit her ability to make necessary changes.
While Yellen has a reputation as one of the Fed officials most willing to risk higher inflation to bring the jobless rate down, her track record offers a more nuanced picture. In 1996, she had warned the then Fed chairman, Alan Greenspan, that leaving rates too low for too long could fan inflation.
Although the argument fell on deaf ears, “it tells you that she’s prepared to be hawkish when she needs to be,” said Laurence Meyer, the then Fed governor who had accompanied Yellen when she met Greenspan.
Yellen was previously president of the Federal Reserve Bank of San Francisco, a White House adviser, a Fed governor during the Clinton administration and a long-time professor at the University of California, Berkeley.
HOW WILL YOU DINE WITH THIS FAMILY?
Janet Louise Yellen
Janet Louise Yellen is the daughter of a Brooklyn doctor who saw patients in the family home. In school, she is named “class scholar” but “most likely to succeed” goes to someone else
Decides to pursue a career in economics after hearing Nobel prize-winning economist James Tobin speak. She later describes Tobin,
a proponent of the view that governments can mitigate recessions, as her intellectual hero. At Yale, she studies under Tobin and receives a PhD in economics
Meets George A. Akerlof, then a fellow economist at the Federal Reserve System, over lunch at a cafeteria. They are married a year later. Much of their work together highlights flaws in the economictheory that markets operate efficiently, a theory thatbasically treats government policy as inherently costly.
Their only child, Robert Akerlof, now teaches economics
Nobel at home
George Akerlof wins the Nobel in economic science in 2001. A professor at the University of California, Berkeley, he shares the prize with economists
A. Michael Spence of Stanford and Joseph E. Stiglitz of Columbia
Akerlof writes about happily collaborating with his wife: “Not only did our personalities mesh perfectly, but we have also always been in all but perfect agreement about macroeconomics. Our lone disagreement is that she is a bit more supportive of free trade than I.”
The couple are unusual in one way, jokes theircollaborator Andrew Rose. “How many Nobel laureates work in the same discipline as their spouse, but are less famous?”
Yellen joked in 1995 that dinner at her house meant “a diet that is richer in discussions of economics and policy issues than many people would find appetising”
Thorough. Arrives at Fed meetings with carefully researched written remarks, delivering them in measured tones with a slight, somewhat nasal Brooklyn accent that nearly 30 years in California have not fully eradicated
Hiking and cooking. One of the hobbies listed in her school newspaper, which she edited, is “reading philosophy so that I can write unpopular essays”
Sees the dangers of the housing bubble earlier than some of her colleagues
But underestimates the risks. In October 2007, tells her colleagues that she believes the Fed has “roughly neutralised the shock”. The Great Recession begins two months later
Richard Fisher, the “uber-hawkish” Dallas Federal Reserve Bank president, has a long-standing friendship with the “dovish” Yellen. Fisher reaffirms the bond with a kiss before each central bank policy-setting meeting. Fisher feels they will no longer be able to exchange the customary kiss. “It’s an exalted position,” he says of the Fed chairpersonship. “There’s a protocol.”
Reuters and NYTNS