April 19, 2021

Hurdles Still High for a New Front-Runner

The first would be to win confirmation from the Senate — an obstacle that doomed the previous front-runner for the job, Lawrence H. Summers.

While Ms. Yellen faces much less potential opposition than Mr. Summers did, the White House is not taking Senate approval for granted. Even as the administration informed legislators on Capitol Hill on Thursday that Ms. Yellen probably would be President Obama’s nominee, one official said the point of the calls was not so much to gauge support but to tell Democratic senators they should defend Ms. Yellen if she comes under attack before a formal nomination.

The second, even bigger, challenge would be to manage the central bank’s retreat from its unprecedented efforts to stimulate the economy, even as the nation’s job market remains frustratingly weak more than four years after the Great Recession.

With the collapse of Mr. Summers’s candidacy, White House officials began calling Senate Democrats about the Fed choice; a senior Congressional aide said the only name they mentioned was Ms. Yellen’s. Since she has become the focus of public discussion, the president’s staff is worried that she could become a target for criticism, just as Mr. Summers was, before the White House actually nominates her and can defend her.

Jeff Merkley, an Oregon Democrat who serves on the Senate Banking Committee, said in an interview Thursday that the White House had accelerated the vetting process for Ms. Yellen.

“Certainly my impression is the White House is taking a very serious and fast-track examination of her as a potential nominee,” Mr. Merkley said.

While Ms. Yellen enjoys strong support from Senate Democrats — a third of the caucus took the unusual step of signing a letter urging the president to nominate her, even before the White House indicated it was leaning toward Mr. Summers — Senate Republicans will be more difficult to persuade.

Some, like Senator Richard C. Shelby of Alabama, an influential member of the Banking Committee, have expressed reservations about her leadership in the past. Mr. Shelby voted against confirming her as vice chairwoman of the Fed in 2010.

Despite the opposition, Ms. Yellen, if nominated, is expected to win Senate confirmation and assume the leadership of the Fed early next year.

Mr. Bernanke handed his successor a gift this week when the central bank surprised Wall Street and many economists by not easing the stimulus effort.

On Wednesday, Mr. Bernanke walked back his earlier suggestion that the Fed’s huge bond-buying effort would cease when the unemployment rate fell to 7 percent, instead leaving the door open for that form of stimulus to continue well into 2014 and perhaps beyond, even if that jobless threshold is breached.

That flexibility is something that Ms. Yellen might well take advantage of. As the most prominent member of the Fed’s dovish flank, other than Mr. Bernanke himself, Ms. Yellen has focused more on the dismal state of the labor market and the pressures facing poor and middle-class families than on the potential threat of financial instability and inflation down the road.

In a major speech in February, Ms. Yellen highlighted not only the elevated unemployment rate, but also long-term joblessness, the high poverty rate, sluggish wage growth, labor force dropouts and homelessness as major reasons for the Fed to continue the stimulus. “The effects of the recession and the subsequent slow recovery have been harshest on some of the most vulnerable Americans,” Ms. Yellen said.

While the unemployment rate has fallen steadily, hitting a five-year low of 7.3 percent in August, much of that improvement has come from workers dropping out of the labor force rather than vigorous job creation. The monthly pace of new jobs has slowed, falling from well over 200,000 new jobs being added each month at the end of 2012 to 169,000 in August 2013.

A more telling indicator of the continuing weakness of the economy, analysts say, is the proportion of Americans who are part of the labor force, which in August hit 63.2 percent, a 35-year low. While some of that decline is because of structural factors like the retirement of baby boomers and the continuing shift from industrial jobs, the trend has accelerated significantly since 2007, prompting many economists to conclude it is primarily a cyclical phenomenon that can be cured only by faster economic growth.

Mr. Bernanke, in fact, highlighted the falling participation rate in a news conference after the Fed’s decision on Wednesday.

Jeremy Peters and Peter Baker contributed reporting.

Article source: http://www.nytimes.com/2013/09/20/business/economy/hurdles-still-high-for-a-new-front-runner.html?partner=rss&emc=rss