WASHINGTON — President Barack Obama's likely choice of Janet Yellen to become vice chairman of the Federal Reserve would favor a policy that stresses low interest rates to ease unemployment over higher rates to curb inflation.
Obama is also considering filling two other Fed vacancies with officials who would boost its ranks of Ph.D. economists and deepen its expertise over financial regulation.
Altogether, the choices would allow Obama to put a bigger stamp on the central bank.
If nominated by Obama and confirmed by the Senate, the three would serve at the Fed during a delicate time: Making sure the recovery from the worst and longest recession since the 1930s becomes firmly rooted.
High unemployment, rising home foreclosures and hard-to-get credit pose a political headache for Obama and his Democratic Party as they face congressional elections this year.
Yellen, the president of the Federal Reserve Bank of San Francisco, is a leading contender to take over as vice chairman of the Fed, Robert Gibbs, the White House press secretary, said Friday.
Yellen, who was a top adviser to President Bill Clinton, is considered a dove on monetary policy. That means she would be expected to be concerned more about high unemployment than about rising inflation.
As vice chairman, Yellen would become the second-highest ranking Fed official. Her duties would include helping build support for policy positions staked out by Fed Chairman Ben Bernanke, who has begun a second term.
Ken Thomas, a lecturer in finance at the University of Pennsylvania's Wharton School, said he thought Yellen, like Bernanke, would be inclined to keep rates at record lows to foster the recovery.
"She'll be more concerned about Main Street and unemployment than about Wall Street and inflation," Thomas said.
Yellen would succeed Donald Kohn, who plans to step down at the end of June. The White House is working for a smooth handoff, with Yellen ready to take office once Kohn leaves.
She has a long history with the Fed. Yellen has been president of the San Francisco Fed since 2004. She was a member of the Fed's Board of Governors from 1994 to 1997.
Yellen, who has written extensively on the causes and consequences of unemployment, has a tendency to address concerns of ordinary Americans.
"The fact that the economy is growing again doesn't mean we're where we ought to be," she said in a Feb. 22 speech. "The unemployment rate is unacceptably high, creating real hardship for millions of Americans."
Obama is considering filling two other vacancies on the seven-member Fed board with Sarah Raskin, a Harvard-educated lawyer who is the Maryland commissioner of financial regulation, and Peter Diamond, an economist at the Massachusetts Institute of Technology, the official said. The official spoke on condition of anonymity because the president had yet to make the announcement.
"I would say Sarah Raskin and Peter Diamond are also under strong consideration for additional vacancies," Gibbs said. He added that other names are in the mix, too. He didn't say when Obama would announce his selections.
Yellen and Diamond, who is an authority on Social Security, pensions and taxation, are Ph.D. economists. With Kohn's departure, the Fed would have just one professional economist – Bernanke. Of its other current members, Daniel Tarullo was a Georgetown law professor, Kevin Warsh brought Wall Street experience and Elizabeth Duke was a banker.
Raskin, who served as counsel to the Senate Banking Committee, would expand the Fed's expertise over financial regulation. That would include consumer issues, which are important to Obama and Congress as they seek to revamp the nation's financial regulations.
The Fed wields power over the economy, employment and inflation through its interest-rate decisions. It also is the country's lender of last resort when banks can't get their money elsewhere – a tool that the Fed exercised fully at the height of the financial crisis. It also oversees banks.