Obama Focuses on 3 to Fill Fed Board

WASHINGTON — Moving quickly to put its mark on the Federal Reserve, the White House on Friday identified two economists and a lawyer as its candidates to fill three seats on the central bank’s board of governors.

The economists are Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, who is the top choice for vice chairwoman, and Peter A. Diamond, a Massachusetts Institute of Technology professor and an authority on Social Security, pensions and taxation. The lawyer, Sarah Bloom Raskin, is the Maryland commissioner of financial regulation.

Ms. Yellen is generally considered to be more concerned at the moment about restoring economic growth and creating jobs than about inflationary pressures. That viewpoint would put her in sync with the Obama administration and the Democratic Party at a time of near-double digit unemployment, but could put her at odds with inflation hawks on the Fed. Neither of the other two choices has an extensive record on interest rate policy.

Word of Ms. Yellen’s selection emerged on Thursday night. The White House released the other names on Friday afternoon, but stopped short of declaring that those choices were final.

President Obama’s press secretary, Robert Gibbs, would say only that Ms. Yellen was “a leading contender” for the No. 2 spot on the board and that Mr. Diamond and Ms. Raskin were “under strong consideration for additional vacancies.”

The cautious language seemed in part a way to gauge reaction in Congress at a time when the central bank has faced criticism over inadequate regulation, a failure to anticipate the fiscal crisis and its sluggish initial response to the financial collapse.

The administration did not seem entirely settled on Mr. Diamond and Ms. Raskin. As of Friday evening, according to people who had been briefed on the search, officials were still vetting other potential candidates, including Raphael W. Bostic, an economist and an assistant secretary of housing and urban development; Kevin G. Chavers, a Morgan Stanley executive who led Ginnie Mae; Damon A. Silvers, a lawyer and policy director at the A.F.L.-C.I.O.; and William E. Spriggs, an economist who is an assistant secretary of labor.

Liberal groups have pressed the White House to include a minority among the nominees; Mr. Bostic, Mr. Chavers and Mr. Spriggs are black.

In January, the Senate confirmed Ben S. Bernanke for a second four-year term as Fed chairman by the narrowest margin ever for any person to hold the office.

Observers of the Fed said that the administration had made a sensible set of choices.

“What they’ve done is try to put together a package of people who play to different strengths: analytic economics with Yellen; a broader economic perspective with Diamond; and then, clearly, a focus on consumer protection with Raskin,” said Randall S. Kroszner, a formed Fed governor who knows all three.

The Fed is at a crucial point in its history. Since 2008, it has held short-term interest rates near zero and placed downward pressure on long-term interest rates by purchasing $2 trillion in government-backed debt and mortgage-related securities.

In the coming months it will have to prepare the markets for an eventual tightening of monetary policy as it unwinds the extraordinary steps it took to prop up the economy and the financial system and seeks to avert a buildup of inflationary pressures. With unemployment at 9.7 percent, moving to a tighter interest rate policy without choking off the recovery will be an economic and political challenge.

Mr. Obama had been facing pressure from the left to appoint Fed governors who would be attuned to economic suffering.

“We want nominees to be very strong advocates for the needs of working families and the middle class and be prepared to stand up to the abuses and outrages of Wall Street,” said Senator Bernard Sanders, an independent from Vermont.

On Friday, Mr. Sanders circulated a letter, signed by five other senators, all Democrats, calling for nominees who would focus on abusive lending and the foreclosure crisis.

Months ago, Lawrence H. Summers, director of the National Economic Council, began a search process to fill two vacancies on the board, working closely with Timothy F. Geithner, the Treasury secretary.

Last week, when the Fed’s vice chairman, Donald L. Kohn, announced he would retire in June, the search took on new urgency, officials said.

The departure of Mr. Kohn, a 40-year veteran of the Fed who is seen as an embodiment of institutional memory, would have left Mr. Bernanke, an authority on the Depression, as the only economist on the Fed’s board.

Ms. Yellen and Mr. Diamond are academic economists with Democratic ties. Ms. Yellen was a Fed governor and White House economic adviser during the Clinton administration. Mr. Diamond co-wrote a book on Social Security with Peter R. Orszag, now director of the Office of Management and Budget.

Economists praised both.

“Yellen was in the vanguard of economists who tried to provide a firm basis in microeconomic principles for Keynes’s macroeconomic ideas,” helping to explain why wages do not fall, instead of employment, in a recession, said Valerie A. Ramey of the University of California, San Diego.

Ms. Ramey said Ms. Yellen “believes that interventions by the government at key points in time can play an important role in stabilizing the economy.”

Kenneth N. Kuttner of Williams College said that Ms. Yellen appeared to be close to Mr. Bernanke and Mr. Kohn in the view that “it is difficult to identify bubbles as they happen, and in any case monetary policy is a very blunt instrument to use against them.”

Alicia H. Munnell of Boston College, who served with Ms. Yellen on the White House Council of Economic Advisers, said, “Although, like all good central bankers, Janet worries about inflation, she also cares deeply about the welfare of American workers and the plight of the unemployed.”

Susan M. Phillips, who served with Ms. Yellen on the board in the 1990s, recalled that Ms. Yellen was meticulous in her participation in the Federal Open Market Committee, which sets the benchmark short-term interest rate.

“I used to go in with an outline,” Ms. Phillips, now dean of the George Washington University School of Business, recalled. “Janet had a prepared, written statement and she’d be working on it right until she gave it. And I knew that, because I was sitting right next to her.”

While Mr. Diamond does not specialize in monetary policy, he brings expertise on fiscal matters during a time of considerable worry over the deficit. And Frederic S. Mishkin, a former Fed governor, said that Mr. Diamond’s microeconomic perspective was invaluable.

“The issues around regulation require really deep thinking about microeconomics, and in that capacity he will be an extremely valuable addition to the board,” Mr. Mishkin said.

Ms. Raskin was named in 2007 to the Maryland position, which involves consumer protection, an area of particular concern to the Fed, and financial literacy.

She was previously managing director of the Promontory Financial Group, founded by Eugene A. Ludwig, a comptroller of the currency during the Clinton administration. Before that, she was a lawyer at the Senate Banking Committee under Senator Paul S. Sarbanes, a Maryland Democrat who has since retired.

“She is consumer-sensitive, in a balanced and thoughtful way,” Mr. Ludwig said.