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 The Senate voted 59-34 to move forward with the nomination,
indicating ample support for her confirmation. A final vote is set
for Jan. 6, when the Senate returns after a holiday break.
If approved, as widely expected, the Fed's current vice chair would
succeed Ben Bernanke, whose second four-year term as chairman
expires on Jan. 31. Yellen's main task would likely be unwinding
the extraordinary stimulus the Fed has put in place during
Bernanke's watch.
In the test vote, she won unanimous support from Democrats, but all
but five Republicans on hand voted against taking up the nomination — a sign of both unease with the central bank's unconventional
policies and anger at a recent Senate rule change that made it
easier for majority Democrats to end filibusters.
It was the Senate's final roll call vote of the year.
Yellen, 67, has been a strong supporter of the unprecedented and
controversial monetary policies that Bernanke championed to spur
investment, hiring and economic growth.
The central bank cut overnight interest rates to near zero in
late-2008 and has quadrupled its balance sheet to about $4 trillion
through a series of massive bond purchase programs meant to push
down longer-term borrowing costs.
A strong believer that monetary policy can help get more Americans
back to work, Yellen told a Senate hearing last month that efforts
to boost hiring were an "imperative" for the central bank.
Yet with the unemployment rate having fallen to a five-year low of 7
percent last month, her main task is likely to be unwinding the
extraordinary stimulus the Fed put in place to heal the scars from
the deep 2007-2009 recession.
The central bank gave her a road map of sorts on Wednesday with a
decision to trim its monthly bond purchases by $10 billion in
January, dropping them to $75 billion. Bernanke said it would likely
end the asset purchases by late 2014, and that Yellen fully
supported the decision to start winding them down.
Many Republicans — and some Fed officials — have worried the
quantitative easing program, known as QE3 because it is the Fed's
third such effort, could stoke inflation or asset-price bubbles.
The trick for Yellen will be ending the purchases without rattling
financial markets or disrupting a U.S. economic recovery that has
proven quite vulnerable to shocks both domestic and foreign in the
past few years.
To soothe investors, the Fed accompanied its plan to reduce its bond
buying with a strengthened pledge to keep benchmark overnight
interest rates low for a long time to come, a policy that analysts
see in keeping with Yellen's stated commitment to foster a stronger
jobs recovery.
Eric Stein, portfolio manager at Eaton Vance in Boston, said Yellen
would be very focused on making sure policymakers at the central
bank stayed on message.
"I think under her, they will continue to signal dovish policy,
especially with inflation so low," he said. "I think she'll take it
slow."
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GUIDING HAND
Yellen would bring to the job a wealth of experience at the top
ranks of economic policymaking.
She ran the San Francisco Federal Reserve Bank for more than five
years before becoming the central bank's vice chair in 2010. She had
previously served on the Fed's board in the 1990s and as a top
economic adviser to President Bill Clinton.
"She really isn't a new hand at all," said Carl Tannenbaum, chief
economist at Chicago's Northern Trust. "She certainly will not need
to be oriented to what's going on over there, and so I expect a very
smooth transition."
A highly acclaimed economist, Yellen has taught at the London School
of Economics, Harvard and the University of California, Berkeley,
and has written on a diverse range of topics from single mothers and
youth gangs to wage inflation.
As the Fed's No. 2, she has played a lead role in refining the
central bank's communications strategy, spearheading its adoption
nearly two years ago of a 2 percent inflation target.
She is a proponent of the forward guidance the Fed has used to shape
market expectations about the path of interest rates.
The central bank has said since December of last year that it would
hold rates near zero at least until unemployment falls to 6.5
percent, as long as inflation stays in check. On Wednesday, it said
it expected to hold steady "well past" the time the jobless rate
threshold is reached.
CHANGING FACE OF THE FED
Yellen's confirmation would fill one big hole at the Fed, but leave
several others.
Governor Elizabeth Duke stepped down from the seven-member Fed board
in August; Sarah Bloom Raskin is expected to leave soon for the No.
2 job at the U.S. Treasury; and Bernanke, 60, is widely expected to
step down from his board seat when his separate term as chairman
expires.
Last week, a source told Reuters the White House had asked Stanley
Fischer, 70, to replace Yellen as vice chair. The former head of the
Bank of Israel is seen as one of the world's top monetary
economists.
Yellen, who has long argued that the Fed should tolerate slightly
higher inflation if that is the cost of fighting high unemployment,
has never dissented on a Fed policy decision.
But she also has not shied away from advocating rate increases when
she felt the situation called for it.
(Reporting by Thomas Ferraro; additional
reporting by Ann Saphir in San Francisco; writing by Jonathan Spicer
and Tim Ahmann; editing by Andrea Ricci)
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