U.S. President Barack Obama nominated Janet Yellen to be the next chair of the Federal Reserve Board on Wednesday and said she is a proven leader who knows how to build consensus in managing the Fed’s dual mandate of controlling inflation and increasing employment.
Obama urged the Senate to confirm Yellen as soon as possible.
At a White House event, Obama also paid tribute to current chair Ben Bernanke, whose term on the board ends in January.
Obama called Bernanke a voice of wisdom during a time of market volatility who helped repair the U.S. economy from the worst recession since the Great Depression.
The nomination puts Yellen on course to be the first woman to lead the institution, and the first to head a central bank in any Group of Seven industrial nation.
"More needs to be done to strengthen the recovery, particularly for those hardest hit by the great recession,” Yellen said as she accepted the nomination to replace outgoing Fed Chairman Ben Bernanke, whose second term ends on Jan. 31.
Yellen has been an advocate for aggressive action to stimulate U.S. economic growth through low interest rates and large-scale bond purchases.
She said she would do her utmost to promote maximum employment, stable prices, and a strong and stable financial system if she is confirmed by the U.S. Senate to run the central bank.
Yellen said the United States has made progress in recovering from the financial crisis, but has further to go. “Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families. The Federal Reserve can help if it does its job effectively,” Yellen said at the White House.
If confirmed by the U.S. Senate, which is expected to endorse her, she would provide continuity with Fed policies under Bernanke and would likely move cautiously in reining in policies in place to shore up the world’s largest economy.
“We need a Federal Reserve Chair who is both qualified and experienced, and who would look at policy-making through the lens of what’s best for the middle class. Janet Yellen is exactly that,” said Senate Banking Committee member Jeff Merkley, a Democrat from Oregon.
Expectations that the Fed might start to taper its stimulus program have been a concern for financial markets since May. The central bank shocked investors in September by maintaining its cash injections of $85 billion a month in full.
Yellen’s nomination coincides with a political stalemate in Washington that has partially closed the U.S. government and threatened a U.S. default if lawmakers fail to raise the country’s $16.7 trillion debt ceiling by an October 17 deadline.
Stocks rose late on Tuesday when news of her pending nomination broke, but that proved to be shortlived as investors refocused on the standoff between Republican and Democratic Party lawmakers.
In late morning trading, the Standard & Poor’s 500 Index was down by about 0.15 percent. The MSCI World Index was 0.3 percent lower.
The bond market also had little opportunity to celebrate the appointment of a central banker who many see helping to keep a bid in Treasuries through ongoing purchases by the Fed and a prolonged period of ultra-low policy rates.
Longer-dated Treasuries were slightly lower, but short-dated Treasury bills, particularly those due around the time of the debt ceiling deadline in just over a week’s time, were selling off hard on worry of a possible default.
“Markets are focused on the political fight and are also sensitive to the damage each day of the political fight does to the U.S. economy,” said David Kotok, chairman and chief investment officer at Cumberland Advisors in Sarasota, Florida.
“Yellen knows this. She cannot do anything about it except to proceed slowly on any tapering” of the Fed’s bond purchases, he said.
If confirmed, she would join the Fed’s honor 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.
“I believe she’ll be confirmed by a wide margin,” said Senator Charles Schumer, a Democrat from New York.
Described as a “good egg” by fellow Fed policymaker Richard Fisher and a “very able person” by Japan’s Chief Cabinet Secretary Yoshihide Suga, her most immediate challenge may be to determine when the Fed should reduce its bond buying.
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 U.S. central banker.
Obama is scheduled to announce his nomination of Yellen at the White House at 3 p.m. EDT (1900 GMT), a White House official said, with Bernanke expected to attend.
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.
“With employment so far from its maximum level and with inflation running below the committee’s 2 percent objective, I believe it’s appropriate for progress in the labor market to take center stage in the conduct of monetary policy,” she said in March.
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.
Yellen has been central to moving the Fed toward more clarity and precision in its communications, an openness which she sees as the key to an effective monetary policy. She led a panel of officials who rewrote the Fed’s rules on communications and helped convince her colleagues to adopt an explicit inflation target for the first time last year.
Her selection bolsters the credibility of promises the Fed has made about the future course of monetary policy that have been a hallmark of its approach ever since it dropped interest rates to zero in 2008.
“The authority of central banks depends entirely on their credibility as an institution. So don’t expect massive changes,” former European Central Bank President Jean-Claude Trichet told reporters in Paris.
She could be expected to abide by, if not strengthen, the Fed’s stated commitment to keep rates steady at least until the U.S. jobless rate hits 6.5 percent, as long as inflation does not threaten to pierce 2.5 percent. The jobless rate stood at 7.3 percent in August.
Yellen, who has long argued that the Fed should tolerate slightly higher inflation if that is the cost of fighting high unemployment, has never dissented on a Fed policy decision.
But she also has not shied away from advocating rate rises if she feels the situation calls for it. In 1996, after then-Fed Chairman Alan Greenspan had repeatedly put off raising rates, she and a colleague went to him to argue that the central bank was at risk of courting inflation.