In speech last month at the University of San Diego, San Francisco Fed President… (Sandy Huffaker / Bloomberg )
Economist Janet L. Yellen, a California-based official of the Federal Reserve, has emerged as President Obama's likely nominee to be vice chairwoman of the central bank.
Yellen, president of the Federal Reserve Bank of San Francisco and a former UC Berkeley professor who headed President Clinton's Council of Economic Advisors in the 1990s, would succeed 40-year Fed veteran Donald L. Kohn.
Diane Swonk, chief economist at Mesirow Financial in Chicago and a former advisor to the Fed, said she had known Yellen for many years, calling her "one of the sharpest knives in the drawer."
At a news conference Friday, White House Press Secretary Robert Gibbs described Yellen as "a leading contender" for the No. 2 job at the Fed.
An administration official speaking on condition of anonymity went further about Yellen's prospects, calling her the leading candidate and citing her "impressive set of credentials as a macroeconomist," including expertise in unemployment issues.
Appointing Yellen, 63, who was unavailable for comment Friday, would reinforce Fed Chairman Ben S. Bernanke's policy of keeping interest rates very low to help stimulate the economy.
The main issue now confronting the Fed is when and how to raise rates and unwind other special programs propping up the economy.
As the country struggled through the worst economic downturn since the 1930s, the Fed lowered its benchmark interest rate to near zero to promote employment, one of its core responsibilities. Now it must decide how long it can keep the low rates in place without neglecting its other main duty as an inflation fighter.
Allan Meltzer, a Fed historian at Carnegie Mellon University, called Yellen "dovish" on inflation and said the Fed was running a risk of triggering a round of sharp price increases.
Yellen "will not do much to change that," he said.
Other Fed watchers waxed enthusiastic, including Laurence H. Meyer, an economist who worked with Yellen in the '90s when he also was a Fed governor and became known as an inflation hawk to Yellen's dove.
"Hurray! I jumped up and down when I heard the news," Meyer wrote in a note to clients of his consulting firm, Macroeconomic Advisers.
Meyer dismissed the possibility that Yellen would lose track of the threat of inflation.
"Janet would quickly switch camps . . . if the outlook or her forecast changed such that a serious threat to price stability emerged," Meyer said.
In a Feb. 22 speech at the University of San Diego, Yellen expressed concern less about inflation than about unemployment and the difficulties ahead for economic recovery.
"This is not the time to be tightening monetary policy," she said. "Eventually the economy will gain enough momentum and won't need today's extraordinarily low interest rates."
Fed vice chairs serve four-year terms, subject to Senate approval. The administration wants to designate a nominee in time for that person to be confirmed by late June, when Kohn's term expires, Gibbs said.
The administration official who spoke on condition of anonymity identified two likely nominees to be Fed governors, filling two other vacancies on the Fed's seven-member board: Sarah Raskin, Maryland's head of financial regulation; and Peter Diamond, an economist at the Massachusetts Institute of Technology.
Yellen is a Brown University graduate with a Yale doctorate in economics. She taught at Harvard and the London School of Economics and spent two years as a Fed economist before joining Berkeley in 1980.
Her research, often written with her husband, Nobel Prize-winning economist George Akerlof, has included looks at street gangs and out-of-wedlock births.
Times staff writer Don Lee contributed to this report.