By Peter Schroeder - 09/16/13 11:52 PM EDT
Janet Yellen has become the odds-on favorite to head the Federal Reserve — but it’s no sure thing.
The withdrawal of Lawrence Summers from the vetting process has improved the chances that Yellen — now the Fed’s second-in-command — will be chosen by President Obama to succeed Ben Bernanke as leader of the central bank.
“I don’t think it’s any secret that Larry was not my first choice,” Sen. Elizabeth Warren (D-Mass.) said on MSNBC’s “Morning Joe.”
“Janet Yellen, I hope, will make a terrific Federal Reserve chair,” Warren said. “I hope she’s nominated.”
Investors gave Yellen a vote of confidence as well. The Dow Jones Industrial Average closed the day up 118 points, or 0.77 percent, reflecting the general view that she would be less “hawkish” in fighting inflation than Summers and would stick with stimulus longer.
While many Fed watchers believe Yellen has a significant edge with Summers out of the running, there is an outside chance that Obama could look elsewhere for his candidate to serve as “one of the most important policymakers in the world.”
“President Obama may not like being pressured into picking Yellen, so he may resist naming her simply to show that he can’t be pushed around by congressional Democrats and activist groups,” wrote Brian Gardner, vice president of Washington research at Keefe, Bruyette & Woods, in a note to clients.
“Bottom-line: we think Yellen’s nomination is likely but not a foregone conclusion.”
The president made clear he was seriously considering Summers, a former adviser who used to brief him on economic policy, for the job as leader of the Fed, going out of his way to defend him to Democrats and in press interviews.
But the drumbeat of skepticism, which morphed into outright opposition on Friday, scuttled Summers’s candidacy over the weekend.
White House press secretary Jay Carney on Monday said the president still plans to announce a pick this fall.
Summers, who also served as Treasury secretary under former President Clinton, said vocal opposition to his candidacy was the main reason for his withdrawal. In a letter to Obama explaining his decision, he said an “acrimonious” battle over his confirmation could damage the nonpolitical Fed as well as the economy.
The Fed attracts the most attention for the power it wields over the nation’s monetary policy, via interest rates and other tools. But it was Summers’s record on financial regulation that ultimately sunk him with the left.
Warren was one of as many as four Democrats on the Senate Banking Committee expected to oppose a Summers nomination.
Montana Sen. Jon Tester became the first Democrat on the banking panel to publicly announce opposition to Summers last week. Through a spokesman, Tester said he was “concerned” about his regulatory record.
Tester’s opposition suggested Democratic discontent with Summers could be more widespread. The other three Democrats rumored to be against Summers — Sens. Sherrod Brown (Ohio), Jeff Merkley (Ore.) and Warren — are vocal advocates for tough rules on Wall Street and part of the liberal wing of the party. Tester, a Montana rancher, is seen as more centrist.
Democrats in the House and Senate started cheerleading for Yellen over the summer.
Roughly one-third of Senate Democrats signed on to a letter backing her as the next Fed chief. In the House, a group of female Democrats, led by Rep. Maxine Waters (D-Calif.), also publicly supported Yellen, who would become the first female head of the Fed if picked and confirmed.
Waters, the top Democrat on the House Financial Services Committee, said Sunday the president was “right” to accept Summers’s exit, adding that Obama now has the chance to “unify the country” behind the right pick.
Labor groups and some women’s groups also backed Yellen over Summers, citing in part controversial remarks he made as president of Harvard University about the innate abilities of women in the areas of math and science.
But reports have indicated that the White House is cool to Yellen as Fed chief, and Obama has repeatedly said there is a “range of outstanding candidates” under consideration.
Other picks reportedly in the mix include Donald Kohn, the former vice chairman of the Fed; and Roger Ferguson, another former Fed vice chairman who would become the first African-American to head the central bank if confirmed.
One long-shot name being circulated is Timothy Geithner. While Obama’s first Treasury secretary has reportedly advised the president on the Fed vacancy, Geithner has not been shy about his desire to get away from Washington.
Whoever takes over for the central bank will do so at a critical point in its 100-year history. Bernanke’s expected exit at the beginning of 2014 means his successor will have the difficult job of winding down the trillions of dollars in bond purchases the Fed has made after the financial crisis.
The president’s Fed pick, if confirmed, would step into the job just as the central bank is likely getting that process underway. Many Fed watchers believe the Fed could announce plans to begin tapering its “quantitative easing” as soon as Wednesday, after policymakers wrap up a two-day meeting to set policy.