Obama to tap Yellen, others for Fed: sources

By Mark Felsenthal and Pedro da Costa

WASHINGTON (BestGrowthStock) – President Barack Obama on Thursday plans to name San Francisco Federal Reserve Bank President Janet Yellen to be vice chairman of the U.S. central bank and two others to fill Fed board vacancies, sources familiar with the process said on Wednesday.

In addition to Yellen, Obama intends to name MIT economist Peter Diamond and Maryland state bank regulator Sarah Raskin to the Fed, the sources said. All three would have to be confirmed by the Senate.

Yellen would replace Donald Kohn, a 40-year Fed veteran who announced in March he would retire on June 23, as Fed No. 2. She would serve a four-year term as vice chairman concurrent with a separate and longer term as a board member.

If confirmed by the U.S. Senate, the three will help steer the Fed out of an unprecedented level of monetary stimulus and defend the Fed’s regulatory capabilities before a skeptical Congress, which faults the central bank for lapses that contributed to a financial crisis.

The Fed not only slashed interest rates to near zero in response to the 2008 market meltdown, but also undertook a host of emergency measures that some economists fear will stoke inflation in the future.

Neither Yellen, Raskin, nor Diamond responded to requests for comment. The White House declined to comment.


Yellen’s views on the economy and monetary policy, which have tended to focus on the prospect of continued weakness following the worst recession in generations, are widely known.

The Fed’s mandate is to hold prices low and stable, while ensuring the highest level of sustainable U.S. employment. Policy-makers differ on the strategies for reaching this objective.

Hawks tend to view higher interest rates, slower growth and higher levels of unemployment as a price worth paying for keeping inflation at bay.

Yellen is frequently branded as among the Fed’s doves, who take a more tolerant view of inflation if it means stronger employment growth, or are less likely to generate alarming forecasts for inflation as they estimate future growth and price-pressures.

“Even as we applaud the economic turnaround, it’s important not to lose sight of just how fragile this recovery is and how far we yet have to go before things return to normal,” she said earlier this month.

The Fed earlier on Wednesday renewed a long-standing pledge to hold benchmark interest rates exceptionally low for an extended period, but there is a lively debate about how soon the central bank should begin to move toward tightening financial conditions.

Diamond and Raskin are wild cards from a monetary standpoint, and appear aimed at rounding out the range of expertise at the Fed’s Washington-based politically-appointed board. If confirmed by the Senate, Yellen and Fed Chairman Ben Bernanke would be the only two economists on the board with extensive backgrounds in setting monetary policy.

“It appears that President Obama has a wider view of the role of the Fed than presidents often have,” said Douglas Elliott, an economics studies fellow at the Brookings Institution in Washington.

“Many times they concentrate on monetary economists. Here he seems to be trying to add expertise, like in regulation, that will broaden out the ability of the governors to cope with all the different roles that the Fed has,” Elliott said.

Fed board terms are for 14 years. The unexpired board terms that need to be filled come to a close in 2014, 2016 and 2024.


Obama has made financial regulatory reform a priority in the wake of a devastating financial crash brought on by risky lending and the bursting of a housing bubble. Against a backdrop of public resentment over multi-billion dollar bank bailouts during a time of high unemployment and record home foreclosures, the U.S. Senate is set to begin debate on a financial rules overhaul on Thursday.

Raskin, like Yellen, can boast bank supervision experience. She has a reputation as an assertive bank regulator who has taken on abusive lending and excessive fees and pushed for stronger training for bank examiners and improved supervision of mortgage lenders.

“Let there be no doubt that fraud in financial services is a serious problem,” she said in congressional testimony in March 2009.

Diamond’s writings on taxation and pension reform dove-tail with another pressing topic, widespread angst that with record budget deficits, the U.S. fiscal situation is untenable.

Diamond’s 2004 book, “Saving Social Security,” was co-authored with Peter Orszag, now director of Obama’s Office of Management and Budget.

The MIT professor has frequently consulted on panels examining the future of Social Security, the government-backed pension system.

A former president of the American Economic Association, Diamond is known as a proponent of behavioral economics, which studies why people do not always make rational decisions.


(With additional reporting by Jeff Mason, Caren Bohan and Thomas Ferraro; Editing by Jan Paschal and Carol Bishopric)

Obama to tap Yellen, others for Fed: sources