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Obama names Yellen as bank chief


US President Barack Obama nominated Janet Yellan as the new chair of the Federal Reserve

US President Barack Obama nominated Janet Yellan as the new chair of the Federal Reserve

US President Barack Obama nominated Janet Yellan as the new chair of the Federal Reserve

The central bank of the world's largest economy looks set to be led by a woman for the first time after President Barack Obama nominated Janet Yellen as the next head of the US Federal Reserve.

Ms Yellen, who once taught at the London School of Economics, faces the thorny task of prising markets away from their reliance on regular multibillion-dollar doses of quantitative easing (QE) that have nursed America to recovery.

More immediately the US is edging closer to a possible debt default as the prospect of the White House and Congress agreeing a deal to extend the administration's borrowing limit by October 17 looks ever more doubtful.

The crisis, which hinges on Republican resistance to Mr Obama's landmark healthcare reforms, has already resulted in a partial US government shutdown after politicians failed to agree on a budget bill.

The appointment of Ms Yellen, currently vice-chair of the Fed, should at the very least avoid adding to investors' worries as it is seen as a sign of continuity.

She will become the second woman to head a G8 central bank, after Elvira Nabiullina became governor of the Bank of Russia in June.

Ms Yellen, 67, was a lecturer at the LSE from 1978 to 1980 and has also taught at Harvard. She served as a policy adviser in Bill Clinton's White House in the 1990s.

Married to Nobel-prize winning economist George Akerlof, her son Robert Akerlof is an academic at the University of Warwick in the UK.

Mark Zandi, chief economist at Moody's Analytics, said her appointment was likely to have been announced as a signal of policy stability to financial markets amid the current anxieties.

"Markets are very unsettled and they are likely to become even more unsettled in coming days," he said. "Providing some clarity around who will be the next Fed chairman should help at least at the margin."

Ms Yellen is viewed, like current chairman Ben Bernanke, as a "dove", favouring stimulus measures to boost the economy and jobs rather than worrying too much about the effect on inflation.

Mr Bernanke, whose term finishes at the end of January, has been credited with saving the US banking system after the financial crisis of 2008, as the Fed slashed interest rates and bought trillions of dollars of bonds.

Former Treasury secretary Larry Summers had been seen as the front-runner to succeed him but pulled out of the running last month amid political opposition.

Markets were buoyed by his withdrawal as he was seen as a "hawk" likely to slam the brakes on the Fed's massive stimulus.

Traders have spent the last few months worrying about when the central bank will start easing off or "tapering" its support for the economy, with shares falling at any sign that it is about to be pulled away.

Many were surprised when the Fed decided not to begin this process in September, as expected. The damaging effect of the latest political crisis on the economy means this is now being seen as unlikely until the new year.