Janet Yellen, the president of the San Francisco Fed, is expected to be nominated by President Obama as the new vice chairman of the Federal Reserve as early as today, according to media reports. Yellen, who took her current job in 2004, would replace Donald Kohn, who announced at the beginning of March that he would retire in June.A strong supporter of Fed Chairman Ben Bernanke and one of the most visible regional Fed chiefs, Yellen has been very outspoken on monetary policy and the need to keep rates low. But it's too early to tell if Yellen would continue to agree with Bernanke about record-low rates for an extended period. Like a Supreme Court Justice, it's impossible to predict how someone will react when they move onto the largest stages of the federal government.
Yellen's current stance on monetary policy and her impeccable credentials would likely mean she'd be approved by the Senate. Before the Fed, Yellen chaired the Council of Economic Advisers from 1997 to 1999. As The Wall Street Journal points out, "94 Senators voted to approve her during her first stint at the Fed." But the paper also says she may be questioned about the large number of bank failures in her region.
In addition to Yellen, President Obama will also have the opportunity to fill two other seats on the Fed board. Many observers believe that he'll favor people who agree with Bernanke's philosophy that rates should be low to help the economic recovery and job creation. But it's possible that Obama and Bernanke could be wrong. Fed Governor Kevin M. Warsh Fed and Thomas M. Hoenig, president of the Fed in the region based in Kansas City, have both been strong proponents of the central bank raising rates to head off the inflation that "easy money" due to low rates could cause.
Obama and Bernanke should be careful what they wish for. Yellen and the two other nominees may agree with the president and Fed chief on interest rates, which is perfect -- unless they're all wrong.
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