Democrats pressure Obama to break glass ceiling at the Fed

Democrats are putting pressure on President Obama to break the glass ceiling at the Federal Reserve.
   
A group of Senate Democrats has broken with tradition in an attempt to steer Obama's choice for the next Fed chairman, endorsing Janet Yellen for the job well ahead of an announcement this fall.

If selected, Yellen would be the first-ever woman to hold sway over the nation’s monetary policy.

ADVERTISEMENT
Lawmakers generally hold off on Fed endorsements until the White House makes a nomination, but the choice for chairman is arousing strong feelings — particularly because Yellen’s main challenger is reportedly Larry Summers, a controversial figure in Washington.

With talk running hot this week that Summers, former Treasury Secretary, Harvard president and White House economist, was becoming the front-runner for the Fed job, about 17 liberal Democrats signed onto a closely guarded letter urging the president to choose Yellen, who is now the central bank’s vice chairman.

House Minority Leader Nancy Pelosi (D-Calif.) weighed in as well, praising Yellen as an “extremely talented” candidate even as she vowed to back whomever Obama nominates.

“Let me say that I think it would be great to have a woman — first woman chairman of the Fed, no question about it,” Pelosi said in an interview on "Political Capital with Al Hunt."

Current Fed Chairman Ben Bernanke hasn't publicly discussed his intentions, but he is widely expected to leave when his second term ends on Jan. 31.

Up until this week, it seemed a safe bet that the 66-year-old Yellen, who has been Bernanke's deputy since 2010 and has many years of experience in the Federal Reserve system, would be Obama’s pick.

But the chatter about Summers, who used to provide daily briefings to Obama about the economy, has broadened the field.

Obama is undoubtedly polling a wide range of financial sector experts, including Bernanke, about possible candidates.

Jim Manley, a former spokesman for Senate Majority Leader Harry Reid (D-Nev.), noted that regardless of Summers's interest in the job or Obama's support, "the fact of the matter is that he has to be confirmed by the Senate."

While Summers may be known better in political circles, Dean Baker, chief economist and co-founder of the Center for Economic and Policy Research, said Yellen is an easier lift for the Senate because she has already been vetted for her present position.

"Picking Larry Summers for Fed chair would be exactly the wrong message to send at the moment," Baker said.

"Summers is one of the main architects of the policies that have given us the worst downturn since the Great Depression. It would be an especially bad signal to send when there is an outstanding pick already at the Fed serving as vice-chair, Janet Yellen."

In the letter organized by Sen. Sherrod Brown of Ohio, Senate Democrats focused on Yellen's credentials without mentioning Summers.

"We strongly urge you to nominate Janet Yellen to replace Chairman Bernanke. We believe that she is the best person for this job," they wrote in a letter obtained by The Hill.

The nation needs a chairman "with a solid record as a bank regulator" especially as Treasury Secretary Jack Lew moves to complete implementation of the Dodd-Frank reform law by the end of the year, they wrote.

Although the letter's signers have been mostly kept under wraps, the office of Senate Budget Committee Chairwoman Patty Murray (D-Wash.) confirmed she had signed it.

Democratic Sens. Dianne Feinstein (Calif.), Dick Durbin (Ill.), Tom Harkin (Iowa), Sen. Angus King, (I-Maine) have all reportedly signed onto the letter as well.

The senators credited Yellen for identifying the "impending threats that both the housing bubble and the shadow banking sector posed to our entire economy."

"This prescience speaks to her independence, intellectual rigor and willingness to challenge conventional wisdom regarding deregulation — essential traits for a successful Fed chairman."

They cited continuity as an important factor as the Fed winds down its $85 billion a month bond buying program while touting her significant monetary policy experience.

"The substantial size of the Federal Reserve balance sheet, combined with the delicate state of the recovery, makes Gov. Yellen’s familiarity with the Fed process and communication skills that much more important," they wrote.

Concerns about Yellen center around her being too dovish for some on Wall Street, meaning she is more focused on unemployment than controlling inflation.

Proponents of Summers say he is a brilliant economist and a veteran of financial crises. 

But Summers, if nominated, would likely face scrutiny from Democrats for his famously brash behavior and prickly personality.

By all accounts, during his tenure as head of the Obama's National Economic Council Summer dominated the economic team and clashed with other advisors.

When Manley worked for the late Sen. Edward Kennedy (D-Mass.), he said there were numerous scathing reports about Summers's tenure at Harvard, where he reportedly ruled by fear and intimidation.

"Based on his long career, the guy doesn't play well with others in the sand box and he has sharp elbows," Manley said.

"As far as I'm concerned he's the last thing the Fed needs," he said.

"What we need right more than ever is a consensus-builder who is pro-growth."

Summers's bumpy five-year run as president of Harvard ended after he made comments in 2005 that women lacked the same “intrinsic aptitude” for science as men, which he argued explained why there were fewer elite female scientists.

Even as Summers chances appeared to improve this week, economists remained largely in favor Yellen.

In a Wall Street Journal poll this week, 35 of 42 said they expected Yellen to be the nominee, while only five chose Summers.

Detractors say their biggest concern about Summers is that he has not expressed his opinions on the Fed's monetary policy. They also cite his participation in the deregulation of the financial sector under President Clinton, including the partial repeal of Glass-Steagall, which some argue led banks to take too much risk and contributed to the 2008 financial crisis.

Mike Konczal, a fellow with the Roosevelt Institute, said Yellen would do a much better job at bolstering the economy, enforcing new financial regulations and rebuilding the Fed's monetary policy.

"Summers was simply missing in action for the most important monetary policy debates of the past 30 years, while Yellen was leading them," he said.