WASHINGTON — President Barack Obama will nominate Federal Reserve vice chair Janet Yellen to succeed Ben Bernanke as head of the nation's central bank, the White House said Tuesday. Yellen would be the first woman to lead the powerful Fed, taking over at a pivotal time for the economy and the banking industry.
Yellen and Bernanke are set to appear with Obama at the White House today 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 U.S. economy out of the worst financial crisis and recession since the 1930s.
Yellen, 67, would likely continue steering Fed policy in the same direction as Bernanke. 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.
As vice chairwoman 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.
"She's an excellent choice and I believe she'll be confirmed by a wide margin," said Sen. Chuck Schumer, D-N.Y., a member of the Senate Banking, Housing and Urban Affairs Committee.
Mark Zandi, chief economist at Moody's Analytics, said that the administration probably decided to make an announcement now to send a signal of policy stability to financial markets, where investors are growing increasingly nervous over the partial government shutdown and what they perceive as the much bigger threat of a default on Treasury debt if Congress does not raise the borrowing limit.
Under Bernanke's leadership, the Fed created extraordinary programs after the financial crisis erupted in 2008. It 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.
Those programs are credited with helping save the U.S. banking system.
Yellen 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.
Obama's choice of Yellen for a four-year term 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.
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.
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 chairwoman in 2010 because of her dovish policies. "I am not aware of anything that demonstrates her views have changed," he said.
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.