Yellen Wins Confirmation as Fed Chief

By Jim Puzzanghera and Don Lee
Tribune Washington Bureau

The Senate confirmed Janet L. Yellen as the next chief of the Federal Reserve in a historic vote that put a woman in charge of the central bank for the first time but with the weakest show of support in the Fed’s 100-year history.

Earning just 68 percent of the vote, Yellen will take over a once low-profile institution that has become a polarizing force in Washington’s ongoing political warfare, even as it has evolved into the world’s most important and influential central bank.

With frigid weather nationwide preventing some lawmakers from returning to Washington, the Senate voted 56-26 Monday to approve the former University of California, Berkeley economist to succeed Ben S. Bernanke on Feb. 1. In all, 45 Democrats and 11 Republicans voted for her confirmation, and 26 GOP lawmakers voted against.

President Barack Obama swept aside the Republican dissent and pointed to the bipartisan support received by Yellen, whom he nominated in September after an unusually public campaign by her supporters that highlighted the Fed’s increased profile.

“The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families,” Obama said.

Before the financial crisis sent the recession deeper in late 2008 and left the Fed to devise extraordinary measures to try to spark a faster recovery, the confirmation process usually produced little or no opposition.

For many GOP senators, their “no” votes were as much against the aggressive policies and direction of the central bank to boost the economy than against the 67-year-old Yellen, said Chris Krueger, a senior policy analyst at financial services firm Guggenheim Partners in Washington.

“Being anti-Fed in a lot of congressional districts is just good politics,” Krueger said.

The Fed played a key role in helping bail out the financial industry, starting in 2008, to try to stabilize the economy.

Then it pushed its benchmark interest rate to near zero, where it has stayed for more than five years, making it cheap to borrow but hurting savers and those on fixed incomes.

The Fed also has launched three rounds of bond-buying that have more than quadrupled the central bank’s assets to $4 trillion while flooding the economy with more money that some analysts fear could lead to runaway inflation, though overall prices so far have remained stable.

Increasing criticism of the central bank led Krueger to call the Fed the “monetary version of the Supreme Court,” which in recent decades has seen once routine confirmations turn into bruising political battles.

Yellen, the first Democrat to win confirmation since Paul Volcker in 1983, has been a strong supporter and confidante of Bernanke in championing the so-called easy-money policies the Fed has used to fight high unemployment. That has earned both Yellen and Bernanke the wrath of conservative Republicans.

The final vote tally for Yellen, however, has little practical significance on financial markets or the Fed’s policymaking and ability to operate independently, economists said.

“It’s been known for quite a while that Yellen was going to be the new Fed chair,” said Joshua Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. “Her views are very well known. She’s been at the center of what the Fed has done now for a number of years, and it would be hard to imagine a more seamless transition going from Bernanke to Yellen.”

Democratic leaders noted the historic nature of Yellen’s nomination and praised the Brooklyn native for her deep knowledge and experience. Since 2010, she has been the Fed’s vice chair and previously was president of the Federal Reserve Bank of San Francisco. She also served as chair of the White House Council of Economic Advisers in the Clinton administration.

“She has proven through her extensive and impressive record in public service and academia that she is most qualified to be the next chair,” said Senate Banking Committee Chairman Timothy Johnson, D-S.D. “Americans should feel reassured that we will have her at the helm of the Fed as our nation continues to recover from the Great Recession.”

Even so, most Republicans and Fed critics used the occasion to voice their displeasure at the institution’s policies.
The conservative group Heritage Action for America called on senators to oppose her confirmation and said it would include the vote in its annual legislative scorecard of key congressional decisions.

“Her historically weak support highlights the growing concern over the Federal Reserve’s expanded authority and aggressive use of monetary policy,” the group said.

Yellen’s confirmation margin has no direct effect on her job because the Fed is an independent agency, noted Allan H. Meltzer, a professor at Carnegie Mellon University and author of “A History of the Federal Reserve.”

Neither Congress nor the White House controls its budget, which comes from the central bank’s own operations.
Still, the vote shows how unpopular the Fed has become to some lawmakers, who could try to capitalize on that to pass legislation that would change how the Fed operates.

Sen. Rand Paul, R-Ky., son of former Rep. Ron Paul, a longtime Fed critic, is pushing legislation to expand the Government Accountability Office’s audits of the central bank to include its monetary policy actions and decision making. Yellen and Bernanke opposed the legislation.

In addition, the House Financial Services Committee plans to hold what it called “an aggressive series of hearings” this year to develop legislation “to reform how the nation’s central bank operates.”

Guggenheim’s Krueger said the so-called Audit the Fed legislation has little chance of being enacted while Obama is in office. And he said the House hearings probably will be just “a nuisance and irritation” to Yellen.

Yellen could face a tougher challenge inside the central bank as two regional Fed presidents known to be more critical of easy-money policies become voting members of the policymaking board this year.

And if economic growth picks up this year, as many have forecast, that could put greater pressure on Yellen to pull back more rapidly on the Fed’s signature bond-buying stimulus program.

At the same time, analysts said, an improving economy would help Yellen by likely quieting her critics. The smallest previous confirmation margin for a Fed leader was four years ago when the Senate voted 70-30 for Bernanke, or 70 percent support to a second four-year term amid intense criticism of the central bank’s policies.

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