The nomination of Janet Yellen by President Obama to be the new chief of the Federal Reserve is widely seen as a move that increases the likelihood that mortgage rates will remain low for the immediate future.

Yellen, currently vice chair of the Fed, was officially named by Obama today as his pick to succeed outgoing Fed Chair Ben Bernanke, whose term ends in January.

Advocate for lower rates

Yellen has been an advocate of using the Fed's power to boost the economy through low interest rates, even going so far as to say she would vote in favor of negative rates if she could. She has indicated that she believes it is more important for the Fed to focus on lowering unemployment at the present time than to head off possible inflation by raising interest rates.

Anticipation of her nomination has contributed to a decline in interest rates in recent weeks, ever since the other leading candidate for the job, former Treasury Secretary Larry Summers, withdrew from consideration. Summers was seen as someone who would be more concerned with heading off inflationary pressures if he were named to the post.

Although Yellen is expected to be an advocate for continued economic stimulus through low interest rates at the Fed, it's worth noting that she will be one of only 12 votes on the Fed's Board of Governors, which sets policy. The Fed chair has considerable influence over those decisions, however.

Fed triggered recent rate drop

Thirty-year mortgage rates have dropped by about half a percentage point since the Fed announced in mid-September that it would not be scaling back its bond-buying program as many economists had anticipated. The Fed's monthly purchases of $85 billion in Treasury bonds and mortgage-backed securities is one of its primary tools for promoting lower interest rate, along with the overnight Federal Funds rate, currently at an effective rate of 0 percent.

The Fed's Open Market Committee, which sets Fed policy, meets again at the end of this month but the negative economic impacts of the federal government shutdown make it appear unlikely they will decide to scale back the stimulus at that time, meaning any such moves would not come until mid-December at the earliest.

Yellen, the first woman nominated to chair the Fed, is expected to win Senate confirmation.

Published on October 9, 2013