The left wing of the Democratic Party finally won a battle with the Obama administration…sort of.
The White House will nominate Janet Yellen, the vice chair of the Federal Reserve, to be Federal Reserve chair tomorrow. Yellen’s nomination comes after the flameout of Larry Summers, the former White House economic aide who was the first choice of the administration to take Ben Bernanke’s chairmanship when his term expires on Jan. 31.
An administration official told reporters the president will nominate Yellen Wednesday at a White House ceremony scheduled for 3:00 p.m. ET. Outgoing Fed chair Ben Bernanke will be on hand to see Obama’s choice for his successor formally introduced.
Although Summers was never formally nominated, he withdrew himself from consideration in September after it became clear that at least four Democrats on the Senate Banking Committee would not support him.
The 67-year-old Yellen is perhaps the most experienced central banker and economic policymaker in the Democratic Party. She has been the Federal Reserve vice chair since 2010 and was previously an economics professor at University of California, Berkeley, the head of the San Francisco Federal Reserve, the head of the Council of Economic Advisors for two years under Bill Clinton, and a member of the Federal Reserve Board of Governors. If confirmed by the Senate, she would be the first woman to chair the Federal Reserve and the first Democrat to be chair since Paul Volcker in 1987.
The fight over the prospective Summers nomination was one of the first victories for left-wing, populist Democrats who have been critical of what they see as the Obama administration’s closeness with the banking industry.
Summers, who was the head of the National Economic Council for the first two years of the Obama administration, and deputy Treasury secretary and Treasury secretary during the Clinton administration, played a key role in the deregulation of banking and financial markets that many blame for setting the stage for the financial crisis.
Summers also drew criticism for his personal closeness to the financial industry, including consulting positions at Citi as well as for comments he made about women’s aptitude in science while president of Harvard in 2005.
Feminist groups were some of the strongest opponents of Summers’ nomination and were some of Yellen’s strongest supporters. One Democratic congressional staffer said “the nexus of labor and women groups and foundations really pulled in a lot of a favors to influence the committee” to frustrate Summers’ prospective nomination. Stephanie Schriock, the president of Emily’s List, the Democratic women’s group, said in a statement tonight, “President Obama has done so much to make sure women’s voices are heard at the tables where decisions are made in this country — nominating Janet Yellen to be the first woman to chair the Fed is an incredible addition to that legacy.”
Yellen will likely not face the troubles Summer did in securing Democratic support in the Senate for confirmation. Tim Johnson, the South Dakota Democrat and chair of the Banking Committee, said in a statement to Reuters that Yellen “has a depth of experience that is second to none, and I have no doubt she will be an excellent Federal Reserve chairman.”
While Summers was still the White House’s preferred choice and presumptive nominee, about a third of the Senate Democrats, including powerful liberals like Dick Durbin and Patty Murray, signed a letter supporting Yellen authored and circulated by populist Ohio Democrat Sherrod Brown.
Oregon Democrat Jeff Merkley, who played a key role in stymieing Summers’ nomination, said in a statement that Yellen has “been one of the strongest voices on the Federal Reserve Board for job creation and the middle class and has been consistently correct in her economic predictions” and that “Yellen, the first woman ever nominated for the position, is a great choice.”
When Yellen was nominated in 2010 to be the vice chair of the Fed, she cleared the Banking Committee 17-6. One of the Republicans to vote against her was Bob Corker, one of the leading Senate Republicans on financial and economic policy. He said in a statement today to Bloomberg News, “I voted against Vice Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy. We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed.”
Yellen is a mainstream Democratic economist who has won plaudits for prescience on the housing bubble and support for aggressive Federal Reserve action to support a flagging economy that’s mired in slow growth following the financial crisis.
In a speech to the AFL-CIO, the 12-million-member-strong labor union federation, Yellen said, “It is entirely appropriate for progress in attaining maximum employment to take center stage” when it comes to formulating Federal Reserve policy. She also said that the Federal Reserve’s rock-bottom interest rate policy and so-called quantitative easing — some $85 billion worth of bond purchases every month designed to push down long-term interest rates and stimulate the economy — “have helped, and are continuing to help” shore up the economy and support economic growth and push unemployment down.
“She’s not radical, but in terms of people who would make the list she’s the most progressive we would see,” said Dean Baker, a liberal economist and the co-director of the Center for Economic and Policy Research.
Yellen was also one of the few members of the Federal Reserve’s Federal Open Market Committee, the group that determines Federal Reserve policy, to recognize the deterioration of the housing market in 2007 and the threat it posed to the wider economy. At the FOMC’s December 2007 meeting, Yellen, then president of the San Francisco Fed, said, “If house prices and the stock market fall further and the economy appears to be weakening … the risk of recession no longer seems remote, especially since the economy may well already have begun contracting in the current quarter.”
Where Yellen’s views are much less clear are on financial regulation, an area where the Fed chair has only gained more power since the financial crisis. Summers, on the other hand, was both a strong advocate for financial deregulation during the Clinton administration and an advocate for the Obama’s administration’s financial regulation efforts.
The Huffington Post reported in September that Yellen supported the repeal of the Glass-Steagall Act, the Depression-era banking regulation that separated commercial and investment banking and was fully repealed by the Republican Congress and Clinton administration in 1999. “Some of my left-wing friends are discovering that Yellen supported deregulation,” said Brad DeLong, a Berkeley economics professor and a friend and former colleague of both Summers and Yellen, after Summers withdrew his nomination and Yellen became the clear frontrunner.
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