WASHINGTON — The Senate confirmed Janet Yellen as the chairwoman of the Federal Reserve on Monday, marking the first time that a woman has led the country's central bank in its 100-year history.
As a Fed official, Yellen, 67, has been an influential proponent of the Fed's extraordinary measures to revive the economy, even though interest rates are already close to zero. But as chairwoman, Yellen's arduous task will be to oversee the gradual unwinding of those extraordinary measures, despite an uncomfortably high unemployment rate of 7 percent and subdued inflation.
“Americans should feel reassured that we will have her at the helm of the Fed as our nation continues to recover from the Great Recession,” Senate Banking Committee Chairman Tim Johnson, D-S.D., said in a statement.
During the confirmation process, senators from both sides of the aisle criticized the Fed for not doing enough to aid the economy and help middle-class Americans, and for trying to do too much, thus distorting the markets and risking new bubbles.
“I fear that they are already way too deep,” said Sen. Charles Grassley, R-Iowa, on the Senate floor before the confirmation vote. Grassley questioned how the Fed would taper its recent campaign of large-scale asset purchases “without spooking investors,” and whether it might stoke inflation.
Despite those objections, Yellen won confirmation easily. The vote was 56-26, with 11 Republicans supporting her. Yellen, the 15th Federal Reserve chairman, will be the first Democratic nominee to run the Fed since President Jimmy Carter named Paul Volcker as chairman in 1979.
Sens. Mike Johanns and Deb Fischer, both R-Neb., and Grassley voted against Yellen's confirmation. Sen. Tom Harkin, D-Iowa, was one of the senators who was not present for the vote.
Johanns, a member of the Senate Banking Committee, had previously expressed concern that Yellen would continue the “easy money” policies currently being employed by the Fed.
“My concern is not qualification,” Johanns said just after Monday's vote. “I like Janet Yellen, she's a very nice person. But I think the policy of continuing to fuel this economy is not good monetary policy, and when I talked to her I didn't see any possibility of a change there. ... We've got to take the sugar away.”
Yellen, who is known for being meticulous and bookish, steps into the position as the Fed shifts strategy.
In December, the chairman, Ben Bernanke, announced that the Fed would start to taper its purchases of Treasury and mortgage-backed debt to a pace of $75 billion a month from $85 billion a month. The decision came as new data showed stronger economic growth and a significant drop in the unemployment rate, to 7 percent in November from 7.8 percent a year before.
The Fed's decision “to modestly reduce the pace of asset purchases at its December meeting did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed,” Bernanke said at a speech this month, reflecting on his tenure. “It reflected the progress we have made toward our goal of substantial improvement in the labor market outlook.”
Yellen voted to start to ease the Fed's asset purchases in December, alongside all but one of her colleagues on the Fed's policymaking committee.
Fed watchers have warned that withdrawing support from the economy either too soon or too late comes with significant risks: of subpar growth on one hand and overheating markets on the other.
“The Fed will need to exercise caution as it scales back further on its pace of asset purchases,” David J. Stockton of the Peter G. Peterson Institute for International Economics said in an analysis of the challenges that lie ahead for Yellen. “We have experienced several episodes in the past few years when a burst of favorable data led to increased optimism that soon proved unwarranted.”
He continued: “To be sure, the Fed could taper purchases now and then ramp them back up should economic results fall short. But reversing course like that would be a difficult maneuver to execute and communicate.”
There are already signs that the Fed's decision to ease up on stimulus has affected lending activity. Interest rates on 30-year mortgages jumped after Bernanke indicated the Fed might start to reduce its asset purchases last year, although rates are low by historical standards.
In her confirmation testimony, Yellen stressed that the Fed's extraordinary measures were bolstering growth, even if the pace of the economy's expansion had been frustratingly sluggish at times. She also said that the Fed's policies had helped not only Wall Street, but Main Street.
The bank's stimulus campaign has “made a meaningful contribution to economic growth,” Yellen said. “The ripple effects go through the economy and bring benefits to, I would say, all Americans.”
This report includes material from World-Herald staff writer Joseph Morton.