Fed's Yellen seen winning Senate approval after vigorous debate

Reuters

* Yellen can clear Senate's banking panel on Democrats alone

* Just needs a handful of Republicans to get to a final vote

* Several financial industry groups praise Yellen

* Tea Party Republicans seen putting Fed easing on trial

By David Lawder

WASHINGTON, Oct 9 (Reuters) - Janet Yellen appears set towin U.S. Senate confirmation as the first female Federal Reservechair given unified support from Democrats, who will only needto pick up a few Republican votes to secure her confirmation.

The debate likely will be contentious as Republicans fromthe smaller-government Tea Party faction use the nomination -the first for a Fed chair since they took office - as a platformto put the central bank's easy monetary policy on trial.

And the protracted fight in Congress over the debt limit,government spending and Obamacare could also complicate mattersand some Republicans are already declaring their opposition.

But in the end, political math favors Yellen. With a 12-10Democratic majority on the Senate Banking Committee, she canclear the panel on Democratic votes alone and would need thesupport of just six Republicans to neutralize any proceduralhurdles on the Senate floor.

The Senate managed only 30 votes against outgoing Fedchairman Ben Bernanke's last nomination at the height ofCongress' anti-Fed animosity in early 2010, when the centralbank was preparing to launch massive bond purchases.

Known as quantitative easing, the bond buying aims to driveother borrowing costs lower to help stimulate economic growthand create jobs. Critics fear it could lead to unwantedinflation.

Bill Frenzel, a former Republican congressman who is now aguest scholar at the Brookings Institution, said that ifRepublicans could not stop Bernanke then, there is little chancethat Yellen, widely seen as continuing his policies, will berejected now.

Most of the opposition is on the fringes, outside themainstream view of the Fed in the Senate, he said.

"These are people who either don't like the Fed at all orthey don't like some of the positions that Dr. Yellen hadparticipated in as vice chairman," Frenzel said. "She is held insuch high regard generally in her field that those objectionsare not going to carry."

John Cornyn of Texas, the No. 2 Republican in the Senate,has already decided to vote against Yellen, his office toldReuters, saying Yellen was "intent on more quantitative easing."

"Ms. Yellen subscribes to the liberal school of thought thatthe best way to handle to our nation's fiscal challenges is tothrow more money at them," Cornyn said in a statement.

Senate Banking Committee member Bob Corker, a Republicanfrom Tennessee, who opposed Yellen in her 2010 nomination as Fedvice chairman, also signaled likely opposition.

"I've seen nothing to change my view of where she isrelative to monetary policy in the last two or three years," hetold CNBC television. "She wasn't someone I could support backin 2010. I doubt that's going to change."

But some more moderate Republicans are making more favorablenoises. Senator Susan Collins, a Maine Republican, called her"clearly a very experienced, qualified individual."

"Right now, I am favorably disposed toward her but I do wantto wait until the hearing to see how she answers specificquestions," Collins said.

Several financial industry groups with traditionally closeRepublican ties issued warm statements about Yellen, signalingimportant support that could influence senators in the party'smainstream and help secure votes.

Tim Pawlenty, a former Republican Governor of Minnesota whosought his party's nomination for president in 2011, said shewas "a talented economist who will bring a wealth of experienceto the job," in a statement on behalf of the Financial ServicesRoundtable, of which he is president and chief executive.

DEMOCRATS GUSH

Praise for Yellen, currently the Fed's Vice Chair, camequickly from Democrats who effectively blocked the nomination offormer White House adviser Lawrence Summers, who was believed tobe President Barack Obama's first choice for the job.

"Today is a historic moment for the Federal Reserve, forwomen everywhere, and for all of us who care about jobcreation," said Senator Sherrod Brown of Ohio.

Brown and four other Democrats on the Senate BankingCommittee had opposed Summers in part because of his advocacyfor financial deregulation in the late 1990s when he served atthe U.S. Treasury. Many lawmakers and economists say thisplanted the seeds for financial crisis a decade later.

Their resistance, along with the expected opposition of anumber of committee Republicans, meant that Summers could notclear the panel for consideration by the full Senate.

Senator Jeff Merkley, an Oregon Democrat who opposedSummers, called Yellen a "great choice" and "one of thestrongest voices on the Federal Reserve Board for job creation."

Senator Heidi Heitkamp, a North Dakota Democrat and anotherSummers skeptic on the committee, was a bit more circumspect,calling Yellen "an extremely experienced economist with a deepunderstanding of the Federal Reserve."

Yellen is considered one of the Fed officials most concernedabout high unemployment and least worried about inflation.

While that has helped cement support on the Democratic sideof the aisle, it has caused unease among Republicans who areworried the Fed's actions risk sparking inflation or fuelingasset bubbles. The Fed has held interest rates near zero sincelate 2008 and has quadrupled its balance sheet to about $3.7trillion with a series of large-scale bond purchases.

Democrats control the Senate 54-46, but any nomination islikely to need to secure 60 votes to overcome proceduralhurdles. But analysts think that is a low bar to clear.

"Given that she is not a highly polarizing figure and is notseen as a partisan, not to mention the gender politics of herbeing the first woman nominated to lead the Fed, we doubt shewill be blocked," Brian Gardner, a senior vice president ofbroker Keefe Bruyette and Woods, said in a note to clients.

Still, some Republicans will likely use the debate over thenomination to put the Fed's easy-money policies on trial,particularly those allied with the Tea Party movement andelected after current Fed Chairman Ben Bernanke was confirmed in2010. Bernanke won confirmation to a second four-year term on a70-30 vote, the narrowest in the Fed's history.

Several Republicans have complained the Fed's bond purchaseshave strayed into Congress' fiscal policy territory, encouragingmore government spending and weakening the U.S. dollar.

Chris Krueger, a political analyst at Guggenheim Securitiesin Washington, said fiscal battles in Congress also will likelystill be on the boil, and partisan animosity inflamed, whenCongress gets around to considering the nomination.

"This is going to be a very public and very politicalspectacle," he said.

But he said one thing in Yellen's favor is that the votewill be taken after a special Senate election in New Jersey onOct. 16, where Democrats will likely pick up a seat - and avote.

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