Federal Reserve Vice Chairman Janet Yellen is President Barack Obama’s top candidate to lead the central bank even after her supporters helped force his initial favorite to withdraw, according to people familiar with the process.
Lawrence H. Summers, Obama’s former economic adviser, removed his name from consideration rather than face what he said would be an “acrimonious” confirmation process. Summers was targeted by Yellen’s backers who said he was too lax on regulating Wall Street and that Yellen, another candidate mentioned by Obama, was a better choice.
If selected by Obama and confirmed by the Senate, Yellen, 67, would become the first woman to serve as the Fed’s chairman.
“I think it would be very difficult now for Obama to back away” from Yellen, said David Zervos, a managing director at Jefferies & Co. in New York, who served as a visiting adviser to the Fed in 2009. If Obama chooses someone else, “then, it sort of turns very anti-Yellen from the Obama administration, which I don’t think he has been,” Zervos said yesterday on Bloomberg Television.
People familiar with the internal deliberations said that while White House officials don’t blame Yellen for Summers’s exit, there is resentment toward Yellen supporters who they say undermined Summers’s credentials.
The decision over who should take over when Ben S. Bernanke’s tenure as central bank chief expires on Jan. 31 coincides with Fed discussions over how quickly to wind down its $85 billion in monthly bond purchases.
Traders had speculated that, given Summers’s past questioning of the effectiveness of quantitative easing, he might have reduced the stimulus faster than other candidates.
With Summers out of contention, stocks rallied yesterday with Treasuries and the dollar weakened against its major peers.
The Standard & Poor’s 500 Index surged 0.6 percent in New York, while five-year Treasury yields declined seven basis points to 1.62 percent. The dollar traded near the weakest level this month versus the yen.
Yellen also has the support of investors and a core group of more than 400 economists who signed onto letter supporting Yellen’s candidacy, including former Federal Reserve Vice Chairman Alan Blinder.
White House Press Secretary Jay Carney said yesterday that Obama’s timetable for announcing a choice had not changed from his earlier statement that he’d do it “in the fall.”
“We are still in the summer,” Carney told reporters at a daily briefing. The first day of autumn is next week, Sept. 22.
Obama, in meetings with congressional Democrats in July, named Yellen and former Fed Vice Chairman Donald Kohn as candidates, along with Summers, for the position. Former Treasury Secretary Timothy F. Geithner isn’t interested in the job, according to several people familiar with the process.
The president’s inner circle was split over whether Obama should expend political capital on a Summers confirmation fight. Unlike the drama playing out in public, it wasn’t a split along gender lines, according to the people, who asked not to be identified to talk about internal deliberations.
The split came down to those who figured that the battle would be too costly, including White House Chief of Staff Denis McDonough and senior adviser Valerie Jarrett, the people said.
While no significant opposition has emerged against Yellen, “our sense is that the President dislikes the notion that he is being forced into picking any nominee, including Yellen,” Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington, said in a client note.
The Summers case underlines the difficulty the president’s staff has had reading how lawmakers in both parties will react to his initiatives, according to two Senate aides with knowledge of the matter. Yellen supporters have now made clear that it’s not just who Obama likes most that will get the job: It’s who can get confirmed by the Senate.
That the selection process is so contentious even before the president makes a choice is unusual for any nomination, more so for a traditionally non-partisan one.
“This nomination process and confirmation is not supposed to be a high media event extended over a period of months,” Mark Williams, a former Federal Reserve examiner, said in a telephone interview.
Senate Democrats weren’t given a heads up by the White House before the Summers withdrawal news broke, with most lawmakers and staff members learning of it through news alerts or Twitter, according to two Senate aides.
Lawmakers who had raised concerns with the White House about a Summers nomination were quick to tout Yellen yesterday. That she has a solid constituency in the Senate was evidenced by a July letter of support signed by 20 senators.
“I’m a big fan of Janet Yellen,” Senator Elizabeth Warren, a Massachusetts Democrat, said in an interview with Bloomberg Television. “I think she’s terrific. She’s got the right experience, and I think she’d make a terrific Federal Reserve chair.”
Democrats, who control the Senate 54-46, will need Republican votes to reach the 60-vote threshold that has become required to put aside a filibuster and move forward with most nominations. That means Republicans, most of whom have raised concerns about the Fed’s large-scale bond purchases under Bernanke, will be required for approval.
Some Republicans, including Texas Senator John Cornyn, the No. 2 party official in the Senate, have said they would oppose both Summers and Yellen. Senator Pat Roberts, a Kansas Republican, said the same.
“We continue to believe that Yellen will become the nominee due to both her experience and the relatively easy path to confirmation she would face, but caution that it may be premature for Yellen to start moving her belongings to the Chair’s office,” Boltansky said.
--With assistance from Kathleen Hunter, Cheyenne Hopkins and Ben Schenkel in Washington. Editors: Steven Komarow, Michael Shepard
To contact the reporters on this story: Phil Mattingly in Washington at firstname.lastname@example.org; Julianna Goldman in Washington at email@example.com
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