President Barack Obama is set to nominate Janet Yellen as the new Federal Reserve chair, an announcement that could come as soon as next week, according to Goldman Sachs.
“There doesn't seem to be much doubt" that the Fed's current vice chair will get the nod, Goldman economist Alec Phillips said in a note.
Following Larry Summers’ surprise decision to drop out of the contest for the next Fed chair, Yellen has once again become the overwhelming favorite for the position when Ben Bernanke’s term ends on Jan. 31. Irish oddsmaker Paddy Power now shows Yellen has 2-to-7 odds, meaning a successful $7 wager would win a $2 profit.
The White House sent signals last week that Yellen was under serious consideration, and it has been laying the political groundwork in the Senate for her eventual nomination to avoid the possibility of any surprises following an announcement.
White House officials called influential senators last week, encouraging them to voice support for Yellen before Obama announces a decision.
“The formal announcement could come as soon as next week. Assuming that the president has made his decision, he is likely to want to announce it soon,” Phillips said.
However, getting an announcement out quickly poses challenges, according to Phillips.
First, the White House will want to fully vet its nominee, which takes time. In Yellen's case, the fact that she went through this before her nomination in 2010 should shorten the process.
Second, the calendar is crowded with other political distractions. An announcement this week seems unlikely because Obama is attending meetings at the United Nations General Assembly in New York, and later this week there is a threat of a government shutdown if Congress does not extend spending authority by Monday, Sept. 30.
Assuming that spending authority is extended past Sept. 30 and a shutdown is avoided, an announcement Oct. 1 or Oct. 2 -- early in the weekly news cycle -- might make the most sense. It also is worth noting that Yellen has canceled a speech planned for Oct. 1 hosted by the Economic Club of New York.
Obama is scheduled to attend meetings in Asia from Oct. 6-12, so if the announcement is not made next week, it might have to wait until mid-October.
Once the nomination has been announced, the White House will hand the formal nomination to the Senate, probably a few weeks later.
Nominating and confirming a Fed chair could take three months (via Goldman Sachs):
The Senate Banking Committee is apt to hold a hearing a week or two after the White House sends the papers. This would probably imply a hearing in early November, shortly after the debt limit has been raised and the Federal Open Market Committee’s Oct. 29–30 meeting.
Typically the committee will not vote on the nomination until several weeks after the hearing, while it waits for the nominee to answer additional questions in writing, according to Phillips. To be reported to the full Senate for consideration, a simple majority of the committee needs to support the nomination. There are 12 Democrats and 10 Republicans on the Banking Committee.
Some commentary has suggested that the FOMC's decision against tapering asset purchases will pose a challenge to Yellen's confirmation, but Goldman disagrees.
“We doubt that members of Congress who are skeptical of asset purchases will try to hold Yellen directly accountable for decisions made by the FOMC,” Phillips said. “Also, Yellen seems likely to get unanimous support from Democrats on the Banking Committee, so while committee Republicans will probably question her extensively on the Fed's balance sheet, her nomination would probably not be reliant on their support to get out of committee.”
Two votes will be held on the nomination. First, the Senate Banking Committee will vote, probably in November or December. Assuming Yellen is nominated, she is likely to receive unanimous Democratic support on the committee, which would be sufficient to move the issue to the full Senate, where a vote on confirmation seems unlikely until January 2014. “While Yellen's nomination might not receive a great deal of support from Senate Republicans, at this point the likelihood of confirmation appears very high,” Phillips said.