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Will Janet Yellen be The Most Powerful Women in the World?
As expected President Obama nominated Janet Yellen to succeed current Fed chairman, Ben Bernanke who is set to step down early next year. If confirmed Yellen, who has been called “a small lady with a big IO,” will be the first woman to head the US Federal Reserve in its 100-year history, arguably the most important job in world finance.
Yellen has long been seen as the frontrunner to Bernanke and referred to as possibly the most qualified nominee ever. But she faced stiff opposition from former Treasury secretary Larry Summers, who had strong support within the administration.
The 67-year-old economist and Brooklyn native was appointed vice-chair of the Fed in October 2010. Previously she was president and CEO of the Federal Reserve Bank of San Francisco and also served as chair of the Council of Economic Advisors from 1997 to 1999.
Yellen's appointment comes at a crucial moment for the Fed, which is currently pumping $85bn a month into the US economy through an economic stimulus program known as quantitative easing. Yellen has been seen as one of Bernanke’s key allies in the stimulus package, which has split the Fed board, as other members have been increasingly concerned about the impact of the massive bond-buying program. Despite her support for the program Yellen has stated that unemployment is currently too high and that the Fed needs to help with this. Her challenge will be to effectively taper the Fed’s bond buying to ensure a soft landing for economic growth.
Yellen’s appointment also comes as Congress argues over raising the US debt ceiling. Bernanke has consistently warned that failure to raise the US borrowing limit would have a severely negative impact on the country’s still-fragile economic recovery. An expert on the job markets, Yellen has been a staunch ally of Bernanke as he has tried to use low interest rates and QE to reanimate the US’s still-lackluster job market.
Summers had been seen as the Obama administration’s favored candidate. But his candidacy ran into opposition from Democrats unhappy with Summers's history as a champion of financial deregulation before the financial crisis, and was forced to withdraw his candidacy for the position.
Senator Tim Johnson, a Democrat who heads the Senate banking committee, which must approve Yellen's nomination, said he would 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.
Senator Chuck Schumer, a Democratic committee member, called her "an excellent choice" and predicted she would be confirmed by a wide margin.
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 sub-prime 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 encouraging dangerous bubbles in assets like stocks or real estate.
Republican senator 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.
Charles Geisst, a finance professor at Manhattan College and the author of Wall Street: A History, said Bernanke’s successor would have some tough comparisons to live up to. The current Fed chairman has served since 2006 and was appointed by Obama’s predecessor George W Bush. He has been Fed chairman during some of the most turbulent economic periods in US history. “Bernanke will probably go down in history as the man who saved the world’s financial system,” said Geisst.
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