January 06, 2014, 06:13 pm
Senate confirms Yellen at Fed
By Peter Schroeder
The Senate on Monday voted 56-26 to confirm Janet Yellen as the first woman to lead the Federal Reserve.
Eleven Republicans joined Democrats present on Monday in voting to confirm Yellen, who will face more scrutiny than perhaps any central bank leader before her when she formally takes the reins this month from the retiring Ben Bernanke.
Yellen will be in control of an institution that has just begun unwinding years’ worth of unprecedented stimulus into the economy, while seeing its regulatory workload explode under the Dodd-Frank financial reform law.
All of this activity comes as a growing chorus in Congress is calling for the Fed to come under more scrutiny, something the central bank has responded to by seeking to make its leader more accountable to the public.
Even Yellen’s strongest backers acknowledge she’s taking on a massive role.
“She’s superbly qualified for this assignment,” said Alice Rivlin, a former Fed vice chairwoman who worked with Yellen. “It’s a very big job. It’s a much bigger job than it used to be.”
The challenges facing Yellen were evident even in her confirmation vote.
She takes the job just weeks after Republicans on the House Financial Services Committee embarked on a year-long dissection of the institution with an eye toward reform legislation. And cries of “audit the Fed” have grown from fringe voices to a healthy bipartisan contingent that approved such a House bill in the last Congress.
Yellen has received ample praise and little criticism for her robust academic work and extensive experience at the Fed, where she has held multiple positions over several decades between stints of academic work.
The job of the leader of the Fed has become increasingly public as well, between feisty congressional hearings and once-unthinkable press conferences. Yellen’s ability to effectively communicate publicly is less established.
“This is probably the biggest unknown with Yellen,” said Mark Calabria with the Cato Institute, which has been critical of Fed policies. “We don’t really have a lot of data points in terms of her public communication.”
Yellen could face hot criticism from conservative Republicans — particularly in the House — who have been highly critical of the Fed’s policy of stimulating the economy, which Yellen has staunchly backed.
Still, she cruised through her November confirmation hearing, suggesting her dealings with Congress need not be treacherous.
“She’ll handle that well,” said Rivlin. “She’s a sensible and judicious person. She’s very good in testimony.”
Yellen’s big task will be to unwind the trillions of dollars of stimulus the Fed has pumped into the economy. As the recession took its toll, the Fed exhausted its traditional toolbox and began turning to novel approaches in an effort to prop up the economy. But with the recovery taking hold, Bernanke used his last chance to adjust Fed policy to begin winding down the third and presumably final round of “quantitative easing.”
The new chairwoman’s job will be to complete that task, while making sure the Fed pullback does not trip up the ongoing recovery. Critics of the policy, in which the Fed has purchased trillions in bonds, have argued the central bank is exposing the U.S. to damaging inflation. Others argue unwinding the policy could wreak havoc on markets.
It’s Yellen’s job to make sure that doesn’t happen.
“Janet is going to have to preside over the dismantling of all this QE, and that is going to be a very, very tricky proposition, which I guess will not be a smooth one,” said Daniel Alpert, managing partner at Westwood Capital.
Beyond navigating the nation’s monetary policy, Yellen also steps to the top of a Fed that has taken on a significantly expanded role as a Wall Street watchdog. The Fed and other financial regulators faced significant criticism for failing to sniff out the seeds of the financial crisis, and the Dodd-Frank financial reform law handed the central bank many more tools to prevent another collapse.
Yellen’s thoughts on financial regulation are less known than her monetary policy bona fides, and lawmakers in both parties will be keeping a close eye on the Fed as it tries to balance needed rules with a free-flowing market.
“That’s pretty much new territory,” said Rivlin. “The Fed has been in the spotlight since the financial crash and has new responsibilities.”
Yellen’s ascension to the job marks a significant win for the left; several liberal senators took the relatively rare action of publicly backing Yellen for the job before the president nominated her. That vocal advocacy was seen as a rejection of President Obama’s rumored favorite to replace Bernanke — former economic adviser Lawrence Summers.
Adverse weather kept many senators away from Monday's confirmation vote, but Yellen received a smaller share of support for her confirmation than any other Fed nominee in history.
Just 68 percent of voting senators backed Yellen, compared to the 70 percent support Bernanke received when he sought a second term in 2010. If the full Senate had been in, it's likely Yellen would have surpassed the 30 'nay' votes Bernanke received at the time.
Fed nominees in the past had been generally supported on a bipartisan basis, but just 11 GOP senators voted in favor of Yellen: Sens. Lamar Alexander (Tenn.), Kelly Ayotte (N.H.), Richard Burr (N.C.), Saxby Chambliss (Ga.), Dan Coats (Ind.), Susan Collins (Maine), Tom Coburn (Okla.), Bob Corker (Tenn.), Jeff Flake (Ariz.), Mark Kirk (Ill.) and Lisa Murkowski (Alaska) voted with all the Democrats.
Yellen's vote came amid an ongoing feud between the parties over the confirmation process, driving up animus toward nominees as well.