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 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.
“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 for a third day and Treasuries (USGG10YR) gained for a fifth.
The Standard & Poor’s 500 Index (SPX) added 0.4 percent to 1,705.00 at 2:27 p.m. in New York after climbing 0.6 percent yesterday. The yield on 10-year Treasuries declined 1.4 basis point to 2.85 percent.
Yellen also has the support of investors and a core group of more than 400 economists who signed on to a letter supporting Yellen’s candidacy, including former Federal Reserve Vice Chairman Alan Blinder.
Fifty-six of 65 economists in Bloomberg survey said Yellen was likely to be Obama’s choice. The survey was taken yesterday and today. A Sept. 6 poll showed that 49 percent of economists expected Summers to be Obama’s pick, compared with 38 percent for Yellen.
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.
The selection process may extend into next week or beyond, according to one of the people familiar with White House discussions.
Obama plans to be in New York Sept. 23 and 24 for the United Nations General Assembly meeting. He’s scheduled to leave for a six-day trip to Asia beginning Oct. 6. In between the administration will negotiate with congressional Republicans on a spending bill that would avoid a federal government shutdown at the start of the fiscal year on Oct. 1.
Former Treasury Secretary Timothy Geithner isn’t interested in the Fed job, according to several people familiar with the process. 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.
There are signs that Kohn isn’t under serious consideration. While Carney told reporters today that Obama hasn’t yet made a decision, he mentioned only Summers and Yellen when asked how Obama was handling the decision process.
“The president will have an announcement when he’s ready to make one,” Carney said. He declined to get into more specifics “beyond what the president himself said when he talked about both Larry Summers and Janet Yellen.”
Kohn remains listed on an agenda of speakers at an October event for Citigroup’s Citi Research Global Issues seminar in Washington, which may indicate that he isn’t concerned about what would be a potential conflict by speaking at a banking event if he were being considered for the banks’ top regulator.
Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on whether Kohn was still scheduled to speak at the event.
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.
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 nonpartisan 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 demonstrated 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. “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.
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