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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.

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Sen. Chuck Schumer, a Democratic committee member, called her "an excellent choice" and predicted she would be confirmed by a wide margin.

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Obama's choice of Yellen coincides with a key turning point for the Fed. Within the next several months, the Fed is expected to start slowing the pace of its Treasury and mortgage bond purchases if the economy strengthens. The Fed's purchases have been intended to keep loan rates low to encourage borrowing and spending.

While economists saw Obama's choice of Yellen as a strong signal of continuity at the Fed, analysts said the difficult job of unwinding all of the Fed's support without causing major financial market upheavals would fall toYellen.

"Yellen is not going to rock the boat in terms of her approach to monetary policy," said David Jones, chief economist at DMJ Advisors and the author of several books on the Fed. "But it will be her challenge to reverse this prolonged and unprecedented period of monetary ease."

Yet even after the Fed scales back its bond buying, its policies will remain geared toward keeping borrowing rates low to try to accelerate growth and lower unemployment. The unemployment rate is a still-high 7.3 percent. Few expect the Fed to start raising the short-term rate it controls before 2015 at the earliest.

Yellen had long been considered a logical candidate for the chairmanship in part because of her expertise as an economist, her years as a top bank regulator and her experience in helping manage the Fed's polices. Her understanding of the financial system is widely respected: Before the crisis struck, she was among a minority of top economists who had warned correctly that subprime mortgages posed a severe threat.

On the Fed, Yellen has built a reputation as a "dove" — someone who is typically more concerned about keeping interest rates low to reduce unemployment than about raising them to avert high inflation. Her nomination could face resistance from congressional critics who argue that the Fed's low-rate policies have raised the risk of high inflation and might be breeding dangerous bubbles in assets like stocks or real estate.

Republican Sen. Bob Corker of Tennessee, member of the Senate Banking Committee, said he voted against her for vice chair in 2010 because of her dovish policies. "I am not aware of anything that demonstrates her views have changed," he said.

Still, Yellen has said that when the economy finally begins growing faster and rates will need to be raised to prevent high inflation, she will move in that direction.

Yellen drew outspoken support from Senate Democrats, a third of whom signed a letter this summer urging Obama to choose her. Last month, more than 350 economists signed a letter to Obama urging him to nominate Yellen.

If confirmed by the Senate, Yellen would be the first Democrat chosen to lead the Fed since Paul Volcker was picked by Jimmy Carter in 1979. She would also be the first vice chair of the Fed to ascend to the chairmanship.

Yellen served as a Fed board member for three years in the 1990s before leaving to head the Council of Economic Advisers in the Clinton administration. She also served for six years as president of the Fed's regional bank in San Francisco before Obama chose her in 2010 for the No. 2 spot on the Fed's seven-member board in Washington.

Yellen, like Bernanke, was a distinguished college economics professor before joining the Fed. She taught at the University of California at Berkeley from 1980 until 1994 when President Bill Clinton chose her to join the Fed's board in Washington. She served on the Fed's board of governors until February 1997, when Clinton chose her to lead the White House Council of Economic Advisers.

Yellen would not only be the first woman to head the US central bank; she also would be the first woman ever to head a major central bank anywhere in the world.

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