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Janet Yellen: Obama's nominee to replace Bernanke as Fed chief (+video)

Janet Yellen, currently vice chair of the Federal Reserve, would not only be the first woman to head the Fed but the first woman running a major central bank anywhere in the world. Janet Yellen has been a key architect of the Fed's efforts to keep interest rates near record lows.

By Jim Kuhnhenn and Martin CrutsingerAssociated Press / October 8, 2013

Janet Yellen, the vice chair Federal Reserve seen here in November 2012, is President Barack Obama's choice to follow Ben Bernanke at the head of the Fed, the White House announced tonight.

Robert Galbraith/Reuters

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WASHINGTON

President Barack Obama will nominate Federal Reserve vice chair Janet Yellen to succeed Ben Bernanke as chairman of the US central bank, the White House said Tuesday. Yellen would be the first woman to head the powerful Fed, taking over at a pivotal time for the economy and the banking industry.

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Both Yellen and Bernanke are scheduled to appear with Obama at the White House on Wednesday for a formal announcement.

Bernanke will serve until his term ends Jan. 31, completing a remarkable eight-year tenure in which he helped pull the US economy out of the worst financial crisis and recession since the 1930's.

Under Bernanke's leadership, the Fed created extraordinary programs after the financial crisis erupted in 2008 that are credited with helping save the US banking system. The Fed lent money to banks after credit markets froze, cut its key short-term interest rate to near zero and bought trillions in bonds to lower long-term borrowing rates.

Yellen, 67, emerged as the leading candidate after Lawrence Summers, a former Treasury secretary whom Obama was thought to favor, withdrew from consideration last month in the face of rising opposition.

A close ally of the chairman, she has been a key architect of the Fed's efforts under Bernanke to keep interest rates near record lows to support the economy, and she would likely continue steering Fed policy in the same direction as Bernanke.

The White House announcement comes in the midst of a confrontation between Obama and congressional Republicans, particularly those in the House, over the partial government shutdown and the looming breach of the nation's $16.7 trillion borrowing limit. Obama has been harshly critical of Republicans for demanding either changes in health care or spending policies in exchange for paying for government operations and raising the debt ceiling.

White House aides, however, said Obama was not likely to use Yellen's nomination announcement for partisan remarks on the shutdown and debt limit.

Mark Zandi, chief economist at Moody's Analytics, said that the administration probably decided to go ahead with the announcement to send a signal of policy stability to financial markets, where investors are growing increasingly nervous over the partial shutdown and what they perceive as the much bigger threat of a default on Treasury debt if Congress does not raise the borrowing limit.

"Markets are very unsettled and they are likely to become even more unsettled in coming days," Zandi said. "Providing some clarity around who will be the next Fed chairman should help at least at the margin."

As vice chair since 2010, Yellen has helped manage both the Fed's traditional tool of short-term rates and the unconventional programs it launched to help sustain the economy after the financial crisis erupted in 2008. These include the Fed's monthly bond purchases and its guidance to investors about the likely direction of rates.

Sen. Tim Johnson, a Democrat who heads the Senate Banking, Housing and Urban Affairs Committee, which must approve Yellen's nomination, said he will work with the panel's members to advance her confirmation quickly.

"She has a depth of experience that is second to none, and I have no doubt she will be an excellent Federal Reserve chairman," Johnson said in a statement.

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