Yellen Emerges As A Top Choice To Lead Federal Reserve

Janet Yellen is on President Obama's short list to replace Ben Bernanke at the Federal Reserve.

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RENEE MONTAGNE, HOST:

It's MORNING EDITION from NPR News. I'm Renee Montagne.

DAVID GREENE, HOST:

And I'm David Greene. Good morning. Federal Reserve Chairman Ben Bernanke's term expires next January and the competition to succeed him has heated up recently. Larry Summers was Treasury Secretary under President Clinton and a top economic advisor to President Obama, and he's re-emerged as a contender for the Fed's top job. The other top candidate is less well-known. She's Janet Yellen, the current vice-chairman at the Fed. NPR's John Ydstie has this profile.

JOHN YDSTIE, BYLINE: Princeton economist Alan Blinder, also a former Fed vice-chairman, says Janet Yellen's resume is impressive.

ALAN BLINDER: Even Ben Bernanke, who came in with very nice pre-chairman experience, didn't have a match for what Janet's resume shows.

YDSTIE: President Clinton chose Yellen to be a Fed governor in 1994. Later she headed his Council of Economic Advisors. In 2004 she became the president of the San Francisco Federal Reserve Bank. On her watch the housing market boomed and then collapsed under the weight of bad mortgages. Blinder says Yellen recognized the dangers early on.

BLINDER: Seeing much earlier than most, I think even a bit earlier than Ben Bernanke, that what was happening in the mortgage market was posing a grave peril to the economy.

YDSTIE: As the head of the San Francisco Fed, Yellen sat on the Fed's policy-making board as it responded to the financial crisis. Then in 2010, President Obama appointed her vice chairman of the board. University of Chicago Professor Anil Kashyap, who's follows the Fed closely, says Yellen's experience makes her well-suited to handle the most important challenge facing the next Federal Reserve chairman: managing the exit from the central bank's massive stimulus without derailing the economy.

ANIL KASHYAP: She'll be really familiar with every program that the Fed used throughout the crisis, the language that was used when these programs were started. And so when you're taking something away, it's really helpful to know what you said before so you don't contradict things.

YDSTIE: Kashyap says Yellen's consensus-building style could help keep the board together as it exits its huge stimulus programs. Yellen is one of the architects of the Fed's extraordinary stimulus and her goal has been bringing down unemployment. In a speech before the AFL-CIO in 2011, she said the toll of joblessness is terrible on the mental and physical health of workers, and on their marriages and their children. Among Republicans, though, there's concern that Yellen is not worried enough that the Fed's easy money policies might cause inflation. Here's her response.

JANET YELLEN: For many years since we put in place this extraordinary degree of accommodation starting around 2008, inflation has been persistently running at or under two percent.

YDSTIE: That's extremely low inflation. And Yellen's record at the Fed shows she has been very willing to vote for raising interest rates when inflation threatens. One thing that Yellen lacks that some past chairmen have had is a close relationship with Wall Street. And Jared Bernstein, a former member of the Obama White House economic team, says another thing she lacks is a close relationship with President Obama.

That's something her main rival, Larry Summers, has. Bernstein points out that Obama called on Summers for advice way back during the presidential campaign in 2008 as the financial crisis was erupting.

JARED BERNSTEIN: Ever since then he's very much looked to Larry for not only economic advice, but crisis management.

YDSTIE: Some recent reports suggest that Yellen's gender might be hurting her chances in the male-dominated world of economic policy making. She would be the first ever female leader of the Fed. Former Federal Reserve vice-chairman Alice Rivlin thinks Yellen's gender should not be an issue.

ALICE RIVLIN: To suggest that being a woman should be a bar to being the Fed chairman strikes me as really very last century and quite amazing.

YDSTIE: The White House says the president hasn't decided who will succeed Bernanke and will not likely announce a choice until the fall. John Ydstie, NPR News, Washington.

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