Yellen in line for Fed No. 2

By Chris Isidore, senior writer

NEW YORK ( -- San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be the next vice chairman of the central bank, according to White House press secretary Robert Gibbs.

Gibbs, speaking to the press Friday, also said that Sarah Raskin, the Maryland Commissioner of Financial Regulation, and Peter Diamond, a professor at the Massachusetts Institute of Technology, are under "strong consideration" for two long-standing vacancies on the central bank's seven-member board of governors.

Janet Yellen, President Obama's pick to be the next vice chairman of the Federal Reserve.

Gibbs said he couldn't give any timing about when the official nominations might be made, but he reiterated that the President hopes to have a new vice chairman in place before the current occupant of that post, Donald Kohn, retires on June 23.

Yellen has long been viewed as one of the more influential of the presidents of the Fed's 12 district banks.

Besides heading the branch of the Fed that overseas banks in the nine western states, she served a term on the board of governors from 1994 to 1997, and just over two years as the chair of the White House's Council of Economic Advisers during the Clinton administration. She was named president of the San Francisco Fed in June 2004.

Yellen would be the second woman to hold the No. 2 position on the board of governors, following Alice Rivlin, who held the post from 1996 to 1999.

It is the Federal Open Market Committee, which includes the board of governors and select Fed presidents from around the nation, which sets monetary policy, including setting interest rates. The fed funds rate, its key rate that serves as a benchmark for much consumer and business borrowing, has been near 0% since December 2008.

Yellen is generally seen as a "dove" on inflation -- one who is more concerned with promoting economic growth than maintaining price stability.

There was unanimous agreement among Fed policymakers about the need to cut the fed funds rate to near 0% in the face of the problems in the economy and financial markets. But as the economy shows signs of recovery, support for higher interest rate policy is gaining momentum.

Other Fed bank presidents, most notably Kansas City Fed President Thomas Hoenig and Philadelphia Fed President Charles Plosser, have made comments about the need to start raising rates in order to ease fears about feeding inflation or asset bubbles down the road.

Yellen's dovish view on inflation is likely to be more popular with members of the Senate who will vote on her nomination. Fed nominations are typically not very controversial. But the vote to confirm Ben Bernanke to a new four-year term as chairman turned unusually contentious earlier this year, as 30 senators, both Democrats and Republicans, voted against him.

But Bernie Sanders, the independent senator from Vermont and one of the leading liberal critics of Bernanke, sent a letter to President Obama Friday arguing that the three new appointees needed to take a more activist role at the Fed.

In the letter, which was also signed by four Democrats, Sanders called for any new members of the Fed to do more to limit credit card rates and bank fees and increase lending to small businesses, among other things.

Yellen might not stir such strong passions as Bernanke, who was one of the main advocates who pushed Congress to pass the unpopular bank bailout. But she could face tough questions about her bank's supervision of mortgage lending during the housing bubble.

Five of the seven states with the highest foreclosure rates in the nation are in the San Francisco Fed's region, according to readings from RealtyTrac released this week. The nine states she oversees account for more than a third of the nation's total foreclosures.

Kohn's pending resignation gives President Obama the chance to name a majority of the Fed's board of governors. But he has been slow to put his imprint on the central bank's board.

There were two vacancies when he took office, but he filled only one of those two positions. And he has yet to nominate a replacement for Gov. Frederic Mishkin, who resigned at the end of August.

-- CNN Senior White House Correspondent Ed Henry contributed to this report To top of page

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