SF Fed Chief May be Fed Vice-Chair Nominee

San Francisco Federal Reserve Bank President Janet Yellen will be President Obama’s nominee for vice chairman of the Federal Reserve, several media outlets reported, citing sources familiar with the situation.

Yellen, who assumed her post at the San Francisco Fed in 2004, has been very supportive of Fed Chairman Ben Bernanke’s aggressive moves to cope with the worst financial crisis since the Great Depression.

She’s also known as a consensus builder, which could put her in good stead as Bernanke and his colleagues determine when to begin tightening monetary policy. Despite the fledgling recovery, many expect that move to be some months away.

Yellen has been very vocal in supporting the Fed’s policy of holding short-term rates near zero and the central bank’s dramatic expansion of its balance sheet as it purchased mortgage-backed securities and other assets to help pump money into the financial system.

Yellen was chair of President Clinton’s Council of Economic Advisers from 1997 to 1999, after she had served as a member of the Fed’s Board of Governors for three years. She’s taught at UC Berkeley’s Haas School of Business since 1980.

In January, Yellen’s name surfaced as a potential successor to Bernanke amid growing congressional opposition to his confirmation to a second term. Bernanke was confirmed over 30 no-votes, the most any Fed chairman has ever received.

If she accepts the position, she will return to Washington, D.C., making only half of what she earns as the San Francisco Fed chief.

Some observers say her Senate confirmation could include aggressive questioning on the reckless mortgage lending by West Coast financial institutions such as Washington Mutual, now part of J.P. Morgan Chase and Countrywide Financial Corp., now part of Bank of America. Her defenders are likely to point out that the housing bubble was well underway when she took the helm of the San Francisco Fed.

In recent months, she’s expressed concern about persistently high unemployment, sees little risk of inflation and supports regulation to avoid another financial crisis.

Asked after a speech last September in San Francisco about community bankers’ concerns over increased banking regulation, Yellen replied, “We’ve come through a period in which we’ve seen the cost to workers, to firms ... to large banks and to small banks, of having a financial sector that wasn’t appropriately regulated.

“Of course we have to try to avoid an over-reaction that would stifle financial innovation and make it difficult for households and firms to borrow,” Yellen said. “But having in place an appropriate set of rules and regulations that make our financial system safe and protects consumers is something ultimately beneficial to small banks, big banks and everyone living and working in this economy.”