Yellen as Americans' favorite shows Fed is captured by democracy

Caroline Salas Gage

Published: Wednesday, Oct. 9 2013 12:00 a.m. MDT

Janet Yellen, president of the Federal Reserve Bank of San Francisco, speaks in Salt Lake City Tuesday.

Jeffrey D. Allred, Deseret Morning News

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For better or worse, the Federal Reserve is no longer detached from public opinion about how the 100-year-old central bank should be run.

President Obama is to nominate Janet Yellen on Wednesday to succeed Ben Bernanke as Fed chief after unparalleled scrutiny during the selection process. He'll announce his choice at 3 p.m., a White House official said in an e-mail. Former Treasury Secretary Lawrence Summers, who had been the president's favorite, withdrew from consideration on Sept. 15 after opposition from fellow Democrats, while Yellen, the Fed's vice chairman, drew support from more than 400 economists, women's groups, investors and politicians.

The unprecedented frenzy surrounding the nomination is an extension of the backlash that resulted from the Fed's bailouts during the financial crisis and also reflects heightened concern about the economy after record monetary stimulus has failed to bring joblessness below 7 percent.

"The Fed has been absolutely in the middle of the hurricane here in the last five years," James Bullard, president of the Federal Reserve Bank of St. Louis, said in a Sept. 20 interview at Bloomberg's headquarters in New York. "So, I'm not surprised that, you know, Congress, the White House, the financial markets and the public at large are all very concerned about, well, who's this person going to be?"

Bullard said the end of Bernanke's second term — on Jan. 31 — provides "a good time to have a debate" about what the nation wants "out of its central bank."

Yellen, 67, is poised to take over an institution that Bernanke, 59, established as the country's main rescue agent during the 18-month recession that ended in June 2009. Bernanke gave out more than $2 trillion in emergency aid during the worst financial crisis since the Great Depression, including through the rescues of Bear Stearns Cos. and American International Group Inc.

After lowering his benchmark interest rate to near zero in December 2008, Bernanke has relied on unconventional stimulus measures to pursue the Fed's goals of full employment and price stability, swelling the central bank's balance sheet to a record of $3.75 trillion through three rounds of bond buying.

"The Fed used to be on the front page of the business section, and now it's on the front page of the newspaper," Randall Kroszner, a former Fed governor and now a University of Chicago professor, said Sept. 24 on a panel at the Bloomberg Markets 50 Summit in New York. The crisis changed the view of its power, which "now is very well known by people who aren't monetary experts, and that's going to keep it in the political cross hairs."

Senate and House Democrats have lobbied since July for Obama to choose Yellen. Nineteen Democratic senators and one independent — led by Ohio Democrat Sherrod Brown — signed a July 26 letter to the White House praising the former president of the San Francisco Fed and urging the president to nominate her. A group of female House Democrats led by Maxine Waters of California also backed Yellen in a July 31 letter to Obama.

Sarah Binder, who researches the relationship between the Fed and Congress, said she doesn't expect Senate Majority Leader Harry Reid, D-Nev., will have "a hard time" getting the 60 votes required to confirm Yellen.

Republicans, who have criticized the Fed's policies for risking inflation, so far have largely been absent from the debate about Bernanke's successor.

Summers's chances were derailed after at least four Democrats on the Senate Banking Committee, which has jurisdiction over Fed nominees, said they wouldn't support him: Brown, Jon Tester of Montana, Oregon's Jeff Merkley and Massachusetts' Elizabeth Warren.

"We don't really have a modern example of similar push back against a nominee," said Binder, a senior fellow at the Brookings Institution in Washington. Most of the transitions "have been pretty quiet affairs."

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