“She assures continuity on the one hand and on the other hand is exquisitely qualified,” said Nathan Sheets, chief international economist at Citigroup Inc. in New York, who previously served as the top international economist at the Fed. “I don’t know if there’s ever been a Federal Reserve chairman with a broader set of credentials.”
When Yellen became vice chairman of the Fed in 2010, she passed the Senate Banking Committee with a vote of 17-6, providing a preview of what her confirmation process could look like. There are 12 Democrats and 10 Republicans on the Banking Committee.
Senator Bob Corker, one of the top Republicans on the banking committee, said Yellen’s record will come under scrutiny. “I voted against Vice Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy,” Corker, of Tennessee, said in a statement. “We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed.”
Yellen became San Francisco Fed president in June 2004, well before house prices collapsed. Home prices were rising at an annual pace of more than 15% from May 2004 to December 2005, according to the Case-Shiller index of home prices in 20 cities.
Transcripts from meetings of the central bank in 2007, not released until earlier this year, show that Yellen was among the first Fed policy makers to warn how severe the housing situation was becoming.
Gorilla in the Room
At the May 2007 FOMC meeting, Yellen expressed concern that the Fed staff’s forecast was too optimistic on home prices. The forecast “assumes that national house prices are flat going forward,” she said. “I am worried that they may actually fall.”
At the next meeting, on June 27-28, Yellen said the biggest risk to economic growth was housing, which she called the “600- pound gorilla in the room.”
“The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst,” Yellen said. “Rising defaults in subprime could spread to other sectors of the mortgage market and could trigger a vicious cycle.”