Obama to nominate Yellen as next head of US central bank

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WASHINGTON: President Barack Obama will nominate Federal Reserve vice chair Janet Yellen to be the next head of the US central bank, putting her on course to be the first woman to lead the institution in its 100-year history.

Yellen, who would replace Ben Bernanke when his second term as Fed chairman expires on January 31, has been a forceful advocate for aggressive action to stimulate US economic growth through low interest rates and large-scale bond purchases.

If confirmed by the US Senate, she would provide continuity with the policies the Fed has established under Bernanke and would be expected to tread carefully in winding down the extraordinary stimulus the central bank put in place to shore up the world’s largest economy.

Her nomination comes during a political stalemate in Washington that has closed the US government and threatened a US default if lawmakers fail to raise the debt ceiling by an October 17 deadline.

“Thank God Yellen will be nominated under the current circumstances. You don’t want a change at the central bank right now,” said Dan Fuss, a portfolio manager at Loomis Sayles in Boston. “This Yellen news is one uncertainty lifted from already nervous markets.”

US stock index futures rose and the dollar slipped against the euro on the news of Yellen’s pending nomination.

If she wins the Senate’s backing, as expected, she would join the Fed’s honour 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.

Her main challenge will be to steer Fed policy back to a more normal footing and slowly wind down the extensive stimulus measures taken in the five years since the financial crisis.

Obama turned to Yellen, 67, after his former economic adviser Lawrence Summers withdrew from consideration facing 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 US central banker.

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 backing on the Republican side of the aisle is much softer. Many Republicans worry the Fed’s policy of holding overnight interest rates at zero and the massive bond purchases it has pursued to drive other borrowing costs lower threaten to create asset bubbles and spark an unwanted pickup in inflation.

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. — Reuters