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Yellen Waited Out Fed Post as Summers Candidacy Collapsed

Fed Vice Chairman Janet Yellen & U.S. President Barack Obama
Janet Yellen, vice chairman of the U.S. Federal Reserve and U.S. President Barack Obama's nominee as chairman of the Federal Reserve, right, shakes hands with Obama during a nomination announcement in the State Dining Room of the White House in Washington, D.C. on Oct. 9, 2013. Photographer: Andrew Harrer/Bloomberg

Janet Yellen’s chances of ascending to the top Federal Reserve job were dimming by the week.

After President Barack Obama in June signaled the search for the next Fed chairman had begun, his economic team lined up behind Lawrence Summers, an adviser from the first term who managed the administration’s response to the financial crisis.

By August, former Obama aides were preparing for a Summers confirmation push, as informal word spread from Washington to Wall Street that he was the president’s top choice.

Yellen told friends that the White House supported Summers. It wasn’t her personal style to campaign for the post, and she didn’t.

Instead, she focused on her day job: making sure the Fed’s record monetary stimulus was guiding the economy toward lower unemployment without sparking inflation. It turned out to be a winning strategy: the outspoken Summers pulled his name from consideration last month and Yellen emerged unsullied by the political maelstrom.

Details of Summers’s exit and Yellen’s rise to become Obama’s choice were described by current and former White House officials and other people close to the process who asked for anonymity to discuss private deliberations.

Now, the 67-year-old Brooklyn-born economist is on a path to become the first female leader in the 100-year history of the U.S. central bank.

Yellen ‘Humbled’

“Mr. President, I’m honored and humbled by the faith that you’ve placed in me,” a beaming Yellen said yesterday, standing on a stool to reach microphones at the formal announcement in the East Room of the White House.

With much of the Senate’s Democratic caucus already voicing support, her confirmation is all but assured, according to people familiar with the administration’s planning and congressional leaders interviewed for this report who asked for anonymity. Federal Reserve Chairman Ben S. Bernanke has committed to remain at the bank until his term expires on Jan. 31, according to a person familiar with his plans, giving the committee almost three months to act.

“We used to say the Fed chairman was the second most important man in the world. No more,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Long live the Queen.”

Yellen’s Path

Yellen’s road to the nomination followed an unprecedented and widely criticized public contest that divided Democrats and left the president frustrated that members of his own party co-opted one of the most important economic decisions of his tenure, with the nomination spiraling into a political process that he couldn’t control.

While Democratic senators on Capitol Hill pushed for Yellen, a core group of the president’s closest aides, including most of his economic team, backed Summers, who’d long been the leading candidate for the job. The former Treasury secretary under President Bill Clinton and top Obama economic aide had been lobbying to be Fed chairman since August 2009, when the president nominated Bernanke for a second term.

A campaign led by two Democrats, Ohio Senator Sherrod Brown and Oregon Senator Jeff Merkley, who organized advocacy groups and fellow legislators against Summers effectively ended his prospects. Concerned that he would take too soft a stance in regulating Wall Street and eager to see Obama set a precedent in picking a woman, they pushed for Yellen, the Fed’s vice chairman since Obama nominated her for the post in 2010.

Inner Circle

The decision divided the president’s inner circle, splitting those who calculated that the battle would be too politically costly, including Chief of Staff Denis McDonough and senior adviser Valerie Jarrett, according to people who asked for anonymity to discuss internal deliberations.

Efforts by former administration officials Stephanie Cutter and Jim Messina to counter attacks on Summers failed, and a tight circle of the president’s advisers convened to weigh various Fed candidates stopped meeting once the civil war in Syria dominated the agenda at the end of August.

On Sept. 13, Merkley informed the White House that five Democrats on the banking panel would oppose Summers, enough to end his chances of clearing the committee, according to a Senate Democratic aide. Summers withdrew his name two days later, citing a potentially “acrimonious” confirmation route.

Obama Angered

Obama was angered by the treatment one of his most loyal aides found on Capitol Hill and among the Democratic base, as he made clear in public statements defending Summers. Yet, once Summers was out of the running, Yellen was the only serious contender, according to a person familiar with the process.

The president always spoke highly of Yellen and her qualifications for the position, said the person, and Obama settled on her quickly. He interviewed her only once -- before Summers withdrew from consideration -- and needed no call-back.

The process, though, dismayed long-time Fed watchers, who said that the public debate threatened the central bank’s independence.

“The White House has mishandled this terribly,” Richard Fisher, president of the Dallas Fed, said Sept. 23 in response to a question from the audience after giving a speech in San Antonio, Texas. The scrutiny of both Summers and Yellen has been “denigrating” for the candidates, he said, urging the White House to handle future nominations “with more grace.”

Yellen’s Turn

White House aides were determined to better manage Yellen’s rollout and focused on controlling the process to avoid undercutting her chances of confirmation.

As names of other potential contenders circulated in the media in the days following Summers’s withdrawal, including former Fed Vice Chairmen Donald Kohn and Roger Ferguson, who is chief executive officer of TIAA-CREF, the White House quietly told reporters Yellen was the leading candidate.

Publicly, though, they withheld an announcement which the president said would come “in the fall.”

“We are still in the summer,” White House Press Secretary Jay Carney told reporters at a daily briefing on Sept. 16. The first day of autumn was Sept. 22.

Aides said administration officials had not completed vetting Yellen, an indication of how close Obama had been to selecting Summers.

As a career economist and professor, Yellen’s financial records were relatively uncomplicated: Married to fellow University of California at Berkeley professor and Nobel economic laureate George Akerlof, her 2012 public financial disclosure shows the couple held assets between $3.4 million and $7.4 million. They also reported owning a stamp collection valued from $15,001 to $50,000.

Democrats Polled

The White House, which had never called key Democrats on Capitol Hill to gauge support for Summers, didn’t want to make the same mistake again. They reached out to senators on the banking committee for assurances that Yellen would be defended if she came under attack. Their message to Democrats: You all fought to pick her, so be ready to fight for her.

Democratic senators readied their supportive statements.

A week before the official selection, Obama gave no hint of how close he was to a decision.

“This is one of the most important appointments that I make other than the Supreme Court,” the president said in an Oct. 2 interview with CNBC.

Six days later, the White House informed legislators that Yellen would be nominated the following afternoon. Praise from lawmakers and economists rolled into reporters’s in-boxes.

“Thank you Mr. President, for this historic nomination,” Merkley said in a statement. “Janet Yellen, the first woman ever nominated for the position, is a great choice.”

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