Janet Yellen, the current vice-chair at the Federal Reserve, vowed to promote job creation while implementing policies to keep inflation in check as President Obama formally nominated her to run America's central bank.
The announcement, made by the President on Wednesday afternoon, puts the 67-year-old on track to becoming the first woman to lead the Fed. If her nomination is ratified by the US Senate, she would succeed Ben Bernanke at the start of next year.
Ms Yellen has been Mr Bernanke's deputy since 2010. Long seen as the front-runner for her boss's job when he steps down, she is a proponent of the easy-money regime put in place by the Fed to support the world's largest economy as it attempts to recover from the ravages of the financial crisis and the subsequent recession.
Now she will be instrumental in deciding when to begin dismantling the support measures, as the Fed considers when to begin changing its policies. Yesterday, for example, the minutes of the last meeting of its policy-setting Federal Open Market Committee showed that the bank was moving towards cutting the size of its $85bn per month bond-buying programme before the year is out.
"Janet is renowned for her good judgement – she sounded the alarm early about the housing bubble, about excesses in the financial sector, about the risks of a major recession," the President said, announcing the nomination against the backdrop of a budget impasse in Washington that has led to a partial shutdown of the federal government and raised concerns about the possibility of a debt default as the administration nears a Congressionally mandated limit on its ability to borrow money.
Thanking the President, Ms Yellen said that although the economy had improved since the crisis, much still needed to be done. "While we have made progress, we have farther to go... Too many Americans still can't find a job and worry how they'll pay their bills and provide for their families," she said.
Educated at Brown and Yale universities, Ms Yellen is a former President of the San Francisco branch of the Fed and spent a long stretch of her career at the University of California at Berkeley. In the late-70s, Ms Yellen spent two years in the UK, lecturing at the LSE. Economics also permeates the Brooklyn native's personal life: her husband, George Akerlof, boasts a Nobel Prize in the subject, while their son, Robert, teaches economics at Warwick University.
Ms Yellen's path to the top job at the Fed was called into question earlier in the summer when the White House showed signs of leaning in favour of Larry Summers, a former US Treasury Secretary under President Clinton.
But Mr Summers' record soon provoked opposition from within the ranks of the President's own party. During the Clinton years, he was a key proponent of financial deregulation, while later, in 2006, he was forced to step down from the presidency of Harvard University after seeming to suggest that men outperformed women in certain subjects owing to biological differences, something for which he later apologised. He withdrew his candidacy last month.
Yellen at the Fed: What it means
Janet Yellen, 67, will become the first female chairman of the Federal Reserve since the American central bank was established in 1913. She is also the first woman to lead any of the world's major central banks. Our own Bank of England remains a male-dominated bastion. The rate-setting Monetary Policy Committee at Threadneedle Street presently lacks a single woman among its nine members. None of the 23 members of the European Central Bank's governing council is a woman.
President Barack Obama's pick needs to be ratified by the Senate. While Ms Yellen will doubtless receive a rough ride from Republicans who oppose the Fed's monetary stimulus, they will not be able to complain that Ms Yellen lacks relevant policy experience. She was president of the San Francisco Federal Reserve bank for five and a half years. And since 2010 she has been vice chair of the Fed itself, serving as Ben Bernanke's deputy. In the past, Ms Yellen also headed Bill Clinton's Council of Economic Advisers.
She has been an outspoken advocate of the necessity (and ability) of monetary easing by the central bank to boost economic demand and assist America's unemployed. "I think she is fundamentally committed to continuity, that we still have a problem and we still need monetary policy to be doing a fair amount," is the verdict of Christina Romer, a former chair of Barack Obama's Council of Economic Advisers.
Larry Summers, one of the other contenders for the Fed job, was an unknown quantity on monetary stimulus. Not so Ms Yellen. She was one of the architects of the Fed's forward guidance policy, whereby the central bank has committed to purchase billions of dollars' worth of Treasury bonds and mortgage securities until the unemployment rate drops to 6.5 per cent. Traders expect her to be positive for the price of Treasury bonds. Her monetary firefighting skills could well be needed if the debt ceiling fight is not resolved next week. If that disaster is averted, her main challenge will be to manage the "tapering" of asset purchases. Some uncertainty, however, surrounds her stance on financial regulation.
Ben Chu, Economics EditorReuse content