The Ottumwa Courier

AP National

October 9, 2013

Obama to nominate Yellen as Bernanke successor

(Continued)

Obama's choice of Yellen coincides with a key turning point for the Fed. Within the next several months, the Fed is expected to start slowing the pace of its Treasury and mortgage bond purchases if the economy strengthens. The Fed's purchases have been intended to keep loan rates low to encourage borrowing and spending.

Yet even after the Fed scales back its bond buying, its policies will remain geared toward keeping borrowing rates low to try to accelerate growth and lower unemployment. The unemployment rate is a still-high 7.3 percent. Few expect the Fed to start raising the short-term rate it controls before 2015 at the earliest.

Yellen had long been considered a logical candidate for the chairmanship in part because of her expertise as an economist, her years as a top bank regulator and her experience in helping manage the Fed's polices. Her understanding of the financial system is widely respected: Before the crisis struck, she was among a minority of top economists who had warned correctly that subprime mortgages posed a severe threat.

On the Fed, Yellen has built a reputation as a "dove" — someone who is typically more concerned about keeping interest rates low to reduce unemployment than about raising them to avert high inflation. Her nomination could face resistance from congressional critics who argue that the Fed's low-rate policies have raised the risk of high inflation and might be breeding dangerous bubbles in assets like stocks or real estate.

Still, Yellen has said that when the economy finally begins growing faster and rates will need to be raised to prevent high inflation, she will move in that direction.

In the weeks leading to her selection, Yellen and Summers emerged as the two top contenders and were drawn into a highly unusual public battle. Yellen and Summers themselves kept quiet. But their warring camps waged a fight that stirred up Congress, spawned opinion columns and letters from Congress and triggered commentary from notables both inside and outside the economics profession.

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