Janet Yellen. Photo Reuters
Janet Yellen, a key force behind the Federal Reserve's
unprecedented and controversial efforts to boost the US
economy, has been confirmed by the Senate to lead the central
bank just as it begins to unwind that stimulus.
When she succeeds Ben Bernanke, whose second four-year term
as Fed chairman expires on Jan. 31, Yellen will become the
first woman to run the Fed in its 100-year history and just
one of a handful of women heading central banks globally. She
is currently the Fed's vice chair.
The vote to approve her was 56-26. Yellen won resounding
support from Democrats, but many Republicans voted no.
The Fed cut overnight interest rates to near zero in late
2008 and has quadrupled its balance sheet to more than $4
trillion through a series of massive bond purchase programs
meant to push down longer-term borrowing costs.
Yellen, 67, spent years defending those efforts, arguing both
as Bernanke's deputy and before that as head of the San
Francisco Federal Reserve Bank that they would reduce
borrowing costs and spur hiring and economic growth.
Now those policies appear to be working: the US unemployment
rate fell in November to a five-year low of 7 percent and the
economy grew in the third quarter of 2013 at its fastest pace
in almost two years.
Yellen's main task in the world's most powerful financial
post likely will be to navigate the central bank's way out of
its extraordinary stimulus, beginning with dialing down its
In December, Bernanke began the process, leading the central
bank to its landmark decision to shave the bond purchases to
$75 billion this month from a previous monthly pace of $85
The entire program, known as QE3 because it is the Fed's
third such effort at so-called quantitative easing, will
likely be shuttered by late 2014 so long as the economic
recovery proceeds as forecast, Bernanke said.
Many Republicans and several of Yellen's own Fed colleagues
see the wind-down of that program as long overdue and warn
that the buildup of bonds on the Fed's balance sheet could
stoke inflation or asset-price bubbles.
"This expansionary monetary policy cannot continue into
perpetuity without causing real and lasting damage to our
economy," said Senator Charles Grassley, an Iowa Republican.
Those concerns notwithstanding, analysts by and large expect
Yellen to stick with the "dovish" approach to policy that she
has long been known for, with a focus on reducing
unemployment, particularly if inflation continues to run well
below the Fed's 2 percent target.
Yellen has long argued that the Fed should tolerate slightly
higher inflation if that is the cost of fighting high
unemployment. But she has also advocated interest rate
increases when she felt the threat of inflation called for
"She is a strong person but she is also one who is open to
other people's opinion and learns quickly," said Bill Rhodes,
president of William R. Rhodes Global Advisors and a former
senior vice chairman at Citigroup. "I think there has been a
tendency to underrate her ability, frankly."
Yellen is the first person appointed to an initial term as
Fed chair by a Democratic president since Jimmy Carter named
Paul Volcker to head the US central bank in 1979. Although
both Bernanke and his predecessor Alan Greenspan were
reappointed by Democrats, their initial nominations were made
by Republicans -- George W. Bush and Ronald Reagan,
And with Obama already one year into his second and last term
as president, Yellen's appointment means his influence on
economic policy will extend beyond his presidency.
Yellen's rise to the top of the world's most influential
central bank marks an important milestone for women, long
under-represented in the field of economics and finance.
"She is breaking an incredibly important glass ceiling,"
Terry O'Neill, president of the National Organization for
Women, a liberal group that advocates for gender equality,
Even with the Fed's December decision to pare its bond buying
and set out a road map for the wind-down, the Yellen Fed will
have plenty of discretion. She could wait before making
further reductions if the recovery stalls, or dial the
program down faster should the job market strengthen
The Fed sought to soothe investor angst over the reduction in
asset purchases with a strengthened pledge to keep benchmark
overnight interest rates low for a long time to come.
Maintaining the credibility of this pledge will be key to
keeping rates from rising too far, too fast, a key challenge
for Yellen as she faces the delicate task of setting the Fed
back on the path to more normal monetary policy without
rattling financial markets or disrupting the US economic
As she confronts that assignment, Yellen will draw on years
of experience as a top economic policymaker, including her
six years as chief of the San Francisco Fed and her more than
three years as the central bank's No. 2 official.
She also served on the Fed's board in the 1990s when Alan
Greenspan was chairman and as a top economic adviser to
President Bill Clinton.
Yellen is a well-respected economics scholar and has taught
at the Harvard University, the London School of Economics and
the University of California, Berkeley.
Her research, some of it conducted with her Nobel-laureate
husband George Akerlof, includes papers on topics as
disparate as the rise in single motherhood, wage inflation
and the negative effects of advertising.
As the Fed's vice chair, she spearheaded the central bank's
adoption of a 2 percent inflation target and has championed
the forward guidance the Fed has used to shape market
expectations about the path of interest rates.
The central bank has said since December 2012 that it would
hold rates near zero at least until unemployment falls to 6.5
percent, as long as inflation stays in check. Last month it
said it expected to hold rates steady "well past" the time
the jobless rate threshold is reached.
Obama is expected to nominate former Bank of Israel head
Stanley Fischer, an American-Israeli, to replace Yellen as
But he will need to fill at least two other seats on the
seven-member Fed board. One was left vacant when Elizabeth
Duke departed in August and another is expected to be vacated
soon when Sarah Bloom Raskin departs for the No. 2 job at the
Yellen's road to the helm of the central bank was a highly
political one that ran through last summer.
Obama only settled on her after his former economic adviser
Lawrence Summers withdrew from consideration in the face of
fierce opposition from within the president's own Democratic
Party. That opposition, centering on questions about Summers'
temperament for the top Fed job and concern over his part in
deregulating the banking industry, raised doubts about his
chances of winning Senate confirmation.