The woman U.S. President Barack Obama has chosen to lead the Federal Reserve is a widely respected economist who has spent more than 20 years as an insider at the U.S. central bank.
Neither a Wall Street darling nor a political insider, Janet Yellen takes up a position that has the potential to affect not just the U.S. economy, but also economies around the world.
Yellen is currently vice-chair of the Fed and will become the first woman chair when Ben Bernanke steps aside on Jan. 1, 2014.
She enters the job at a time when the Fed is taking an unprecedented role in stimulating the American economy, buying $85 billion of U.S. bonds every month to keep interest rates low in the hope of keeping the economic recovery on track.
Yellen faces the tough task of tapering that bond buyback program in a way that doesn’t spook markets or cause pessimism on main street.
As the public face of the Fed, she will step out from behind Bernanke and into the spotlight, a relatively new role for her.
The Democratic-controlled Senate is expected to endorse her nomination.
"She has a depth of experience that is second to none, and I have no doubt she will be an excellent Federal Reserve chairman," Democratic Senator Tim Johnson, who heads the Senate Banking Committee, said in a statement.
She may face opposition in the Republican-controlled Congress, mostly from lawmakers worried about the potential for inflation because of the Fed’s stimulus program.
So who is Yellen?
1. A key Ben Bernanke ally
Obama’s choice of Yellen is seen as a form of continuity from Bernanke’s term of office. She has been an ally to the current Fed chair in his stimulus program and she supported the most recent Fed decision not to begin tapering, the process of scaling back its bond-buying program.
Bernanke is credited with helping to pull the U.S. economy around from its steepest downturn in more than 30 years with his actions over the last five years. During the financial crisis of 2008, the Fed loaned money to banks to help save the banking system and cut short-term interest rates to zero to keep money available for business amid the turmoil. Now the bond-buying program continues to ensure easy credit.
Yellen faces the task of rolling back the U.S. bond-buying program, but like Bernanke, she has an eye on economic indicators that would prove there is some sticking power to the fragile U.S. recovery.
"Yellen is not going to rock the boat in terms of her approach to monetary policy," said David Jones, chief economist at DMJ Advisors. "But it will be her challenge to reverse this prolonged and unprecedented period of monetary ease."
With federal agencies that crunch economic data like employment rates, housing starts and business confidence shut down, there is no comprehensive data for the Fed to watch, so Yellen is unlikely to move quickly on tapering.
2. A respected economist
She has a bachelor’s degree in economics from Brown University and a doctorate from Yale, graduating in 1971. She is also married to Nobel Prize-winning economist George A. Akerlof.
A group of U.S. economists released a statement in September endorsing Yellen as their choice for Fed chair, over then contender Larry Summers. What they admired was her rules-based approach to economics including her Fed stance in favour of setting targets for inflation and for setting a target for GDP. Yellen also has a reputaton for backing up her position with meticulously detailed research.
One supporter, Berkeley economist James Hamilton, hailed her approach to handling disagreements.
“Yellen is brilliant and tough. She displays this not by needing to prove to you that she's the smartest person in the room, but instead by always asking the right questions,” he wrote in the blog Econbrowser.
“If someone disagrees with her, her first instinct is not to try to bully them, but instead to try to understand why they have reached a different conclusion than she has. Because of this attribute, Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation.”
Yellen also believes she has a mandate to answer to the American public for what she does.
"I hope and trust that the days of 'never explain, never excuse' are gone for good, and that the Federal Reserve continues to reap the benefits of clearly explaining its actions to the public," she is quoted as saying.
3. A track record as a forecaster
Yellen famously predicted the housing bubble, having begun her job as president of the Federal Reserve Bank of San Francisco in 2004, just as the housing market in California was entering a full-scale bubble.
Yellen questioned piggyback loans and the terms of many mortgages with reset after a certain time period and her pronouncements at the Fed table were notoriously pessimistic.
“The possibilities of a credit crunch developing and of the economy slipping into recession seem all too real,” she said in 2007, just ahead of the crash.
In 2009, when many were saying the turnaround had happened and the Fed must be wary of inflation, she was a naysayer. "I expect the pace of the recovery will be frustratingly slow," she said in a San Francisco speech. She’s since been proved right.
4. A key voice on employment
One area where Yellen has differed from Bernanke and other Fed economists has been her focus on reducing unemployment.
In a speech to the AFL-CIO earlier this year, she spoke about maximum employment as a goal for the Fed, calling it part of the Fed mandate.
“My colleagues and I are acutely aware of how much workers have lost in the past five years. In response, we have taken, and are continuing to take, forceful action to increase the pace of economic growth and job creation,” she said.
This view is not universally admired inside the Fed, but is an indication that Yellen understands that the American public is being left behind in the current recovery.
5. A long-time Fed insider
Bernanke had served three years on the Fed board and six months as chair of the Council of Economic Advisers when he was appointed Fed chair.
But Yellen is an insider, taking part in the battle against inflation as well as the recent efforts to restart the U.S. economy. She was chair of the Federal Reserve Bank in San Francisco from 2004-10 and member of the Fed board of governors from 1994-97. She had a more junior role, as an economist at the Fed in 1977-78.
She was chair of the Council of Economic Advisors, a group that advises the president, for two years under Bill Clinton. She worked with many of the people inside the Obama administration during her years with Clinton, including Gene Sperling, who chairs the National Economic Council.
But she is not considered a Washington insider with strong political connections, nor does she have ties to Wall Street. Instead she is said to be a principle humanist.
Yellen’s appointment Wednesday falls as the U.S. edges closer to Oct. 17, the date it’s expected to hit the debt ceiling. If the impasse between Obama and the Republican-controlled Congress cannot be resolved, a string of U.S. defaults will begin, triggering a period of uncertainty around the world. A test indeed for any chair of the Fed.