President Barack Obama announces his nomination of Janet Yellen as Federal Reserve chair. Current chair is Ben Bernanke. (Jewel Samad / Getty Images)
Washington — President Barack Obama’s nominee to head the Federal Reserve has kept a close eye on the auto sector in the aftermath of the financial crisis.
Obama nominated Janet Yellen, who holds the No. 2 spot at the Fed, to replace Ben Bernanke, whose eight-year tenure at the helm ends Jan. 31. The position is critical as the nation continues its fitful economic recovery.
Obama on Wednesday introduced Yellen, who would be the first woman to lead the central bank, as a proven leader. He credited her with being a consensus builder, adding: “She understands the human cost when people can’t find a job.”
The central bank reaches into the lives of millions of Americans. Its two main missions are fostering maximum employment and stabilizing prices. With its power to regulate the supply of money and set interest rates, it influences economic activity, hiring and inflation. It is the leading regulator of banks and plays a crucial role as the country’s lender of last resort when banks can’t get their money elsewhere.
In a September 2009 speech, Yellen said that the Obama administration’s $3 billion “cash for clunkers” program that year helped boost auto sales.
“Recently, sales of light vehicles have begun to rise, in part due to the government’s ‘cash for clunkers’ program,” she said in the speech. “As a result, auto manufacturing has picked up and, with inventories lean, prospects are good for further production increases.”
The program in August 2009 helped Americans buy nearly 700,000 new vehicles with government subsidies of nearly $2.9 billion.
In another speech in 2009 she noted that a Federal Reserve program made it easier for people to get auto loans. The Term Asset-Backed Securities Loan Facility program, Yellen said, helped “restore functioning in other impaired markets that provide credit to households and businesses. The TALF supports the issuance of securities collateralized by auto, student, credit card and Small Business Administration loans — sectors where the issuance of new securities has slowed to a trickle.”
Yellen also has talked in passionate terms about job losses during the recession.
“Some 6 million jobs vaporized during the recession. Each of these was once held by a real human being, who likely depended on that paycheck to pay the mortgage, buy the groceries, and put gas in the car,” she said in 2009. “The loss of these jobs is an immense tragedy. We should never forget that this awful recession is a flesh-and-blood thing that robs our families, neighbors, and friends of their livelihood.”
Bernanke has met with top auto executives over the years — partly to keep tabs on a key part of the U.S. economy. He met with Ford president and CEO Alan Mulally in June.
The challenges for Yellen if she becomes the next Federal Reserve chair will require both the steely intellect and the personable style that many attribute to her.
Deciding when to slow the Fed’s economic stimulus. Forging consensus from a fractious policy committee. Calculating the effects of any economic slowdown from Washington’s budget fight. Facing volatile financial markets. Absorbing new members at the Fed.
Yellen is widely seen as a “dove” on Fed policy: She stresses the need to use the Fed’s tools to boost growth and reduce unemployment in the sluggish aftermath of the Great Recession, rather than worry about igniting future inflation.
In part for that reason, she’s been outspokenly backed by many Democrats in Congress and opposed by some Republicans.
She wasn’t Obama’s first choice to lead the Fed. That was Larry Summers, a former treasury secretary and chief White House economic adviser who withdrew in the face of widespread opposition.
Brian Gardner, Washington political analyst for Keefe, Bruyette & Woods, predicts that Yellen, widely respected as an academic economist and veteran policymaker, will be easily confirmed despite some Republican no votes.
Then the hard stuff begins.
Fed policymakers have been debating when and how to scale back $85 billion a month in bond purchases. The bond purchases are meant to spur economic growth by reducing long-term interest rates, driving up stock prices and encouraging borrowing and spending. Yellen was a key architect of this strategy.
Last month, the Fed surprised financial markets by deciding not to scale back its bond purchases. It concluded that the U.S. economy wasn’t yet healthy enough for the Fed to ease its stimulus even slightly. Fed officials also worried about the budget stalemate that’s since led to a partial shutdown of the government and threatens to trigger a default on government debt.
Many analysts now don’t think the Fed will reduce its stimulus before next year. And with the dovish Yellen as chairman, the Fed would likely be cautious about any pullback in early 2014.
For now, there’s another problem, too: There isn’t much official economic data to go on. The shutdown that began Oct. 1 forced the Labor Department to cancel its all-important jobs report for September. It’s still unclear when the jobs report will come out.
Most analysts say they’re confident Yellen can handle the many challenges.
She’s “a good choice,” McBride says. “You want your Fed chairperson to be cool, calm and collected and a steady hand. Yellen is certainly that.”
Detroit News staff writer David Shepardson contributed.