Yellen Is Now Top Fed Hopeful

By
• CAROL E. LEE
,
• DAMIAN PALETTA
and
• JON HILSENRATH
• CONNECT

Federal Reserve Vice Chairwoman Janet Yellen emerged as the front-runner to become the White House's nominee to lead the central bank, a day after Lawrence Summers pulled out of the contest amid congressional resistance, according to people familiar with the matter.

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Fed Vice Chairwoman Janet Yellen has wide support among Senate Democrats and many fellow economists.

President Barack Obama hasn't made a final decision, a senior administration official said. The process for selecting a nominee isn't starting over, senior administration officials said Monday, and no new candidates have been added to the mix.

An announcement won't happen this week, officials said. White House press secretary Jay Carney said Monday that Mr. Obama is still on track to name his Fed nominee this fall, which he noted technically begins next week.

The search for a successor to Fed Chairman Ben Bernanke has become a messy public contest over the past few months after some lawmakers challenged Mr. Summers and spoke out in favor of Ms. Yellen. Mr. Obama had mentioned them both in July as candidates, along with former Fed Vice Chairman Donald Kohn.

Ms. Yellen has wide support among Senate Democrats and many fellow economists, though her support inside the White House has been shallow compared to Mr. Summers. She declined to comment Monday.

White House officials were criticized by economists and former administration officials Monday for how they have handled the selection. A two-month campaign by Democrats and liberal groups to block Mr. Summers from winning the nomination bloodied the Harvard economist while the White House mostly focused on other matters.

"Floating trial balloons generally sucks as a strategy," said John Podesta, chairman of the Center for American Progress and a White House chief of staff during the Clinton administration. "You've got to make your decision and go with it."

Senior administration officials said the White House hadn't floated Mr. Summers's potential nomination as a trial balloon. They say his name emerged over the summer, and Mr. Obama was put in a position of having to defend him amid criticism, which put even more attention on his candidacy.

Privately, Mr. Obama's aides have said for weeks that Mr. Summers was the president's preferred choice, even as they said he hadn't yet made a decision. Lawmakers weren't consulted about Mr. Summers because he wasn't a nominee, officials said. Mr. Obama wasn't prepared to make a decision earlier, they added.

The surprising turns come at a critical juncture for the Fed. Officials hold a policy meeting Tuesday and Wednesday at which they could decide to begin pulling back an $85 billion-a-month bond-buying program that has helped to push up stock prices and hold down interest rates for the past year. Interest rates have turned higher in anticipation of the program's gradual unwinding.

Mr. Bernanke's second four-year term ends Jan. 31. Mr. Obama's nominee will be subject to Senate confirmation, which typically requires several months.

The White House also faces looming battles on Capitol Hill over legislation needed to avoid a partial government shutdown when the fiscal year starts Oct. 1 and to lift the federal borrowing limit by mid-October so the Treasury can pay all of its bills.

The No. 2 official at the Fed since 2010, Ms. Yellen had a hand in crafting the Fed's bond-buying programs and its commitments to keep short-term interest rates near zero. If she is chosen for the job, it would likely be seen as a sign of continuity at the Fed.

"Yellen is highly experienced, has consistently shown good judgment, and has the temperament as well as the broad respect within the central banking community to ably manage the Fed," Mark Gertler, a New York University professor and friend of Mr. Bernanke said. "She would be the proverbial steady hand and represent a smooth transition from Bernanke."

On Monday, global stock and bond markets rallied as investors learned that Mr. Summers had withdrawn his name from contention for the Fed position. Some investors worried that Mr. Summers might be unsupportive of some of the easy-money policies advanced by Mr. Bernanke. Though it's not clear that would have been the case, his withdrawal provided investors some relief.

Mr. Obama could turn to Mr. Kohn or other candidates. Mr. Kohn, for one, has gotten much less public attention during the search, which might be to his advantage. Mr. Kohn was a long-serving Fed official before retiring in 2010 and worked closely for years with Mr. Bernanke's predecessor, Alan Greenspan.

The chain of events in the Fed nomination drama began in June, when Mr. Obama told journalist Charlie Rose that Mr. Bernanke had worked at the central bank "a lot longer than he wanted." Many interpreted the remarks to mean Mr. Bernanke was on his way out, leading to questions about who would take over.

Early speculation, neither encouraged nor discouraged by the White House, focused on Ms. Yellen. Mr. Summers moved from dark horse to front-runner in July, as it became clear that multiple top-level White House officials—including Mr. Obama—considered him one of the nation's leading economists. Further fueling Mr. Summers's chances, The Wall Street Journal reported July 7 that Messrs. Obama and Summers talked about the possibility of Mr. Summers's nomination to the Fed post in late 2010.

Liberals mobilized to upend Mr. Summers's chances. In late July, more than one-third of the Senate's Democratic caucus sent a letter to Mr. Obama urging him to nominate Ms. Yellen. On July 31, during closed-door meetings with Democrats, Mr. Obama defended Mr. Summers and tried to get lawmakers to back off and give him room to make a selection.

Some Senate Democrats saw Mr. Summers as too supportive of past financial deregulation and too close to Wall Street. Some also bristled at comments he made while president of Harvard University in 2005 in which questioned about the innate math and science aptitudes of women; Mr. Summers later apologized.

Mr. Summers didn't have a broad base of allies among Democrats who would defend him from attacks as he waited for a White House decision. Even singer and actress Bette Midler tweeted in August that Mr. Summers was unfit for the job. Mr. Summers, as is customary, refrained from making public comments once he was a serious contender for the job. Mr. Summers wasn't available for comment Monday.

In August, Ms. Yellen indicated to some associates that she saw herself as an underdog for the post and was uncomfortable with how public and political the debate had become. At the time, two Senate aides said she wasn't being vetted for the job by the White House, leading many to believe she was out of the running. Meanwhile, a White House official said then that Mr. Obama "has all of the information he needs" to make a decision, suggesting an announcement was imminent.

This development triggered another wave of liberal backlash aimed at Mr. Summers, though the White House declined to weigh in on the matter. Meanwhile, several former administration officials said Mr. Obama's request for a congressional vote on his plan to strike Syria exposed deep rifts within liberal ranks.

Senate Democrats didn't want a confirmation fight to embarrass the president, so a group of Democrats on the banking committee told party leaders last week that at least five lawmakers were expected to block Mr. Summers if he came before the panel.

Senate leadership told the White House last week that the level of opposition on the committee would make Mr. Summers's nomination messy and potentially unsuccessful. It also would have placed Senate Majority Leader Harry Reid (D., Nev.) in an awkward position between the president and his caucus. White House officials in the past week began acknowledging to others that Mr. Summers's chances of confirmation were grim, at best, people close to the administration said. Mr. Summers on Sunday withdrew his name from consideration.

Write to Carol E. Lee at carol.lee@wsj.com, Damian Paletta at damian.paletta@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com

A version of this article appeared September 17, 2013, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Yellen Is Now Top Fed Hopeful.