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Yellen gains allies for top job at Fed

Backers rally around the former UC Berkeley economist as interest in Bernanke's successor runs high.

July 31, 2013|By Jim Puzzanghera
  • Fed Vice Chair Janet Yellen, along with ex-Treasury Secretary Lawrence Summers, is a front-runner to succeed Fed Chairman Ben S. Bernanke.
Fed Vice Chair Janet Yellen, along with ex-Treasury Secretary Lawrence… (Eugene Hoshiko, AP )

WASHINGTON — In an era of unprecedented efforts by the Federal Reserve to bolster the economy, add another first — a highly public campaign to influence the selection of the central bank's next chief.

Supporters of Fed Vice Chair Janet L. Yellen have been outspoken recently in boosting her candidacy to replace Chairman Ben S. Bernanke, whose second four-year term expires in January.

About a third of the Senate's 53 Democrats signed a letter urging President Obama to appoint the former UC Berkeley economist and onetime president of the Federal Reserve Bank of San Francisco to the job.

Lawmakers such as House Minority Leader Nancy Pelosi (D-San Francisco) have offered support as if they were weighing in on a presidential primary. And some influential figures in finance, including former Fed Gov. Alan Blinder and former Federal Deposit Insurance Corp. Chairwoman Sheila Bair, have touted Yellen's candidacy.

"It's rare to have this much public discussion about who the president should appoint," said Allan Meltzer, a Fed historian at Carnegie Mellon University.

Bernanke has raised the Fed's profile, dramatically expanding its operations and role in the economy. He also has opened up the decision-making process, holding the Fed's first regular news conferences and reaching out to the public through such events as a televised town hall meeting and an interview on CBS' "60 Minutes."

Partly as a result, the interest in who will succeed him is high.

Yellen supporters have gone public to try to counter the growing impression in Washington that the other leading candidate for the job, former Treasury Secretary Lawrence H. Summers, is the favorite to succeed Bernanke.

Summers developed a close relationship with Obama while serving as his top economic advisor in 2009-10, and several Summers proteges populate the White House inner circle. But he carries some baggage.

Some Yellen backers also are motivated by concern that certain criticisms of her, such as that she's soft-spoken, have sexist undertones.

The Fed hasn't had a female chair in its 100-year history.

"Yellen is clearly the most qualified successor to follow Ben Bernanke. There is no reason to pass her over for less-qualified males," Bair wrote in a recent column on the Fortune magazine website. "Yellen already has a 'Y' in her name; she doesn't need one in her chromosomes."

The nomination of a Fed chair normally is closely followed only by economists, high-level investors and a small cadre of lawmakers with oversight of the 100-year-old central bank.

The chairman's role gained more public awareness when Paul Volcker fought runaway inflation in the early 1980s and Alan Greenspan, nicknamed "the Oracle" for his well-parsed comments, guided the nation through the big economic booms and busts during his long tenure under four presidents from 1987 to 2006.

But the Fed's actions to battle the Great Recession and financial crisis have greatly raised the stakes for its top job.

The next Fed chief will have the difficult task of starting to reduce some of the steps it has taken to stimulate economic growth and lower unemployment, including tapering the $85 billion in bonds the central bank has been buying each month since September to push down long-term interest rates.

"There seems to be an exceptional amount of interest in who the next Fed chairman is going to be, and I think a big reason is, this has been an exceptional time for our central bank," said James Pethokoukis, who blogs about money and politics for the American Enterprise Institute, a conservative-leaning think tank.

Administration officials have said Yellen and Summers are the front-runners to replace Bernanke, who is not expected to seek another four-year term.

Further fueling the push for Yellen is a distaste by many liberals for Summers.

He was a key player in the Clinton administration when it agreed to tear down the wall between federally insured commercial banks and uninsured investment banks, allowing them to own each other, and to avoid regulating complicated derivative securities.

Coupled with loose enforcement of remaining financial rules under President George W. Bush, those changes have been blamed for helping trigger the 2008 worldwide financial crisis.

Summers also angered many on the left when, as president of Harvard in 2005, he suggested women were underrepresented in science and engineering because they lacked the aptitude of men. Controversy over the comments led to his resignation from the post a year later.

Summers has a reputation as being brilliant, but difficult to deal with.

"A lot of people have strong feelings about Summers," said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal think tank. "Some of it, no doubt, is personal."

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