The Fed’s new leader makes history
JANET Yellen, a 67-year-old Brooklynborn economist, is about to become the first woman leader in the 100-year history of the US central bank.
With much of the US Senate’s Democratic caucus already voicing support, her confirmation is all but assured. Federal Reserve chairman Ben Bernanke has said he will stay at the bank until his term expires on January 31, giving the senate banking committee nearly three months to act.
“We used to say the Fed chairman was the second-most important man in the world. No more,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. “Long live the Queen.”
Yellen’s road to the nomination followed an unprecedented and widely criticised public contest that divided Democrats and left President Barack Obama frustrated about members of his own party co-opting one of the most important economic decisions of his tenure when the nomination spiralled into a political process that he could not control.
While Democratic senators pushed for Yellen, a core group of the president’s closest aides, including most of his economic team, backed Lawrence Summers, who had long been the leading candidate for the job.
The former US Treasury secretary under President Bill Clinton and top Obama economic aide had been lobbying to be Fed chairman since August 2009, when the president nominated Bernanke for a second term.
A campaign led by two Democrats, Ohio’s Senator Sherrod Brown and Oregon’s Senator Jeff Merkley, who organised advocacy groups and fellow legislators against Summers, effectively ended his prospects. Concerned that he would take too soft a stance in regulating Wall Street and eager to see Obama set a precedent in picking a woman, they pushed for Yellen, the Fed’s vice-chairman since Obama nominated her for the post in 2010.
The decision divided the president’s inner circle, splitting those who calculated that the battle would be too politically costly, including chief of staff Denis McDonough and senior adviser Valerie Jarrett, according to people who asked for anonymity.
Efforts by former administration officials Stephanie Cutter and Jim Messina to counter attacks on Summers failed, and a tight circle of the president’s advisers weighing various Fed candidates stopped meeting once the civil war in Syria dominated the agenda at the end of August.
On September 13, Merkley informed the White House that five Democrats on the banking panel would oppose Summers, enough to end his chances of clearing the committee, according to a senate Democratic aide.
Summers withdrew his name two days later, citing a potentially “acrimonious” confirmation route.
Obama was angered by the treatment one of his most loyal aides found among the Democratic base, as he made clear in defending Summers. Yet, once Summers was out of the running, Yellen was the only serious contender.
The president always spoke highly of Yellen, he settled on her quickly. He interviewed her only once, and needed no call-back.
But the process dismayed long-time Fed watchers, who said the debate threatened the Fed’s independence.
“The White House has mishandled this terribly,” Richard Fisher, president of the Dallas Fed, said on September 23. The scrutiny of Summers and Yellen has been “denigrating” for the candidates, he said, urging the White House to handle future nominations “with more grace”.
White House aides were determined to manage Yellen’s introduction better and focused on controlling the process to avoid undercutting her chances. As names of other potential contenders circulated in the media, the White House quietly told reporters that Yellen was the leading candidate.
As a career economist and professor,
This is one of the most important appointments that I make other than the Supreme Court
Yellen’s financial records were relatively uncomplicated. She is married to a fellow University of California at Berkeley professor and Nobel economic laureate George Akerlof, and her 2012 public financial disclosure shows the couple held assets of between $3.4million and $7.4-million. They also reported owning a stamp collection valued at $15 001-$50 000.
The White House, which had not previously called key Democrats on Capitol Hill to gauge support for Summers, did not want to repeat its mistake. They reached out to senators on the banking committee for assurances that Yellen would be defended if under attack. The message to Democrats: you fought to pick her, so be ready to fight for her. Democratic senators got their supportive statements ready.
A week before the official selection, Obama gave no hint of how close he was to deciding.
“This is one of the most important appointments that I make other than the Supreme Court,” he said in an October 2 interview with CNBC.
Six days later, the White House told legislators that Yellen would be nominated the next afternoon. Praise from them and economists rolled in. “Thank you, Mr President, for this historic nomination,” Merkley said. “Janet Yellen, the first woman ever nominated for the position, is a great choice.” — Bloomberg