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In the wake of Larry Summers' withdrawal from consideration as Fed chair, many speculate that Janet Yellen is now the leading candidate to assume the post. Yet there are signs the White House may go in another direction, according to industry officials.
September 16 -
Regulatory reform is likely to continue on its current path if Janet Yellen, the Federal Reserve Board's vice chairman, is tapped to lead the central bank. The future is decidedly murkier if Larry Summers wins the post.
July 29
WASHINGTON Members of the Senate Banking Committee quickly took sides in the brewing battle over the nomination of Janet Yellen to head the Federal Reserve Board, but it was already apparent that she was ultimately likely to win confirmation.
President Obama is expected to make the formal announcement of Yellen's nomination at the White House in the afternoon, but lawmakers were not waiting for that before weighing in. Republicans like Sens. Bob Corker and Mike Crapo, the top GOP member of the banking panel, were quick to voice hesitations about the potential nominee.
"The next Fed chair faces a unique set of challenges, including winding down unconventional monetary policy, implementing a long list of unfinished rules under Dodd-Frank without over-regulating the community banking sector, and effectively communicating future policies to the markets and the public," said Crapo, who said he would be "eager" to hear Yellen's vision for the direction of the Fed on its quantitative easing policy.
Corker, meanwhile, was more direct, noting that he voted against Yellen's vice chairman nomination in 2010 because of her "dovish views" on monetary policy.
"I am not aware of anything that demonstrates her views have changed," said Corker, in a statement.
Senate Democrats, however, were united in backing Yellen, with Sens. Tim Johnson, chairman of the Banking Committee, Chuck Schumer of New York, Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio lending the central banker their support.
In a statement, Johnson said he would work with Crapo "to move her nomination forward in a timely manner."
Yet observers warned Republicans not to go too far in opposing Yellen, noting the historic nature of her nomination as the first woman to chair the Fed.
"Opposing her would be harmful to the party," wrote Sheila Bair, the former chairman of the Federal Deposit Insurance Corp., in a CNN/Fortune op-ed. "This would be a historic nomination. She would be the first woman to head the Federal Reserve. And by blocking her, the GOP will risk the public perception that they oppose her because she is outside the male-dominated Wall Street club."
Ultimately, most analysts said that Yellen will win confirmation, even as GOP senators press her on what they consider too dovish monetary policies.
"Every Democrat will support her in committee," wrote Jaret Seiberg, an analyst with Guggenheim Securities. "Republicans may try to block her on the floor of the Senate where it takes 60 votes to defeat a filibuster. Yet the politics are terrible here for the GOP."
Supporters of Yellen credit her with identifying looming threats from the housing bubble and the shadow banking system as vice chair of the Fed and president of the San Francisco Fed.
Cam Fine, president of the Independent Community Bankers of America, said Yellen would bring "practical 'on the ground' regulatory and administration experience to the chairmanship" because of her former role as president of the San Francisco Fed.
"She understands community banks from the ground level and has an appreciation for the challenges community bankers," said Fine, who added if confirmed, the trade group would work with her to address challenges facing the community banking industry.
Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association, declined to comment on Yellen's nomination, but said the trade group will be "keeping a close watch on the nominees for other Fed Board posts."
"The biggest part of the Fed's job is now bank regulation, so it would be great on those other spots to have some people with strong banking industry experience, who understands how what the Fed does on regulation will affect the customers banks serve and the communities where they live," said Abernathy.
Kenneth Guenther, the former head of the ICBA, said Yellen "knows the issues, the players and has strong Hill support." He also noted the fact that she's not in Obama's "inner circle" is "befitting for a strong, independent Federal Reserve."
It is clear that Yellen was not the president's first pick. Former Treasury Secretary Lawrence Summers emerged as Obama's top choice for the position, but strong opposition by Senate Democrats forced him to withdraw his name in September.
Despite a partial government shutdown and a stalemate with Congress in brokering a deal to raise the debt ceiling, Obama said last week that such fiscal calamities were not slowing down his process in reaching a decision on who would be Fed Chairman Ben Bernanke's successor.
"The shutdown is not slowing down the vetting," Obama said in an interview with CNBC on Oct. 2. "The person I'm going to be appointing will end up being somebody who reflect the Fed's dual mandate."
The upcoming announcement by the president puts to rest months of speculation on who would succeed Bernanke after he made his official decision not to stay on for a third term.
Comments by Obama in a June interview with Charlie Rose, host of a PBS interview program, threw the door wide open that Bernanke may not stay on longer, fueling speculation that the current Fed chairman would leave the U.S. central bank when his term expired in early 2014.
"Well, I think Ben Bernanke's done an outstanding job. Ben Bernanke's a little bit like Bob Mueller, the head of the FBI - where he's already stayed a lot longer than he wanted or he was supposed to," said Obama in the interview.
Among the short list of candidates that the White House had been considering for the post included former Fed Vice Chairmen Donald Kohn and Rodger Ferguson, and former Treasury Secretary Tim Geithner.
But Yellen already had substantial support from Senate Democrats, including Warren, who again on Wednesday noted the central banker's long experience at the Fed and as an economist.
"Janet has extraordinary experience and a proven track record of strong judgment and management savvy," said Warren. "The Federal Reserve has much work left to do to accelerate our economic recovery, finish the important work of financial reform that began with the historic passage of the Dodd-Frank Act, and dial down the risk of future financial crises."
