Yellen leads picks for U.S. Fed seat

Sarah Raskin, commissioner of financial regulation for the state of Maryland, and Peter Diamond, an economics professor at MIT, are under strong consideration to fill other vacancies at the Fed, White House spokesman Robert Gibbs told reporters.

Yellen is widely respected within the Fed system and academia, although her reputation a "dove," giving weight to growth and employment, has caused some concern in financial markets. News of her potential nomination weighed on the dollar.

The Fed's mandate is to keep inflation low and stable while ensuring low unemployment, and policymakers regularly debate which portion of the mandate deserves greater emphasis at any given phase of the business cycle.

"It's a great choice," said former Fed Vice Chairman Alan Blinder, an economics professor at Princeton University. Fed Chairman Ben "Bernanke needs someone with intellectual heft on economics, and she provides that."

The potential choices of Raskin and Diamond, who has focussed extensively on the future of the government-backed Social Security retirement system, reflect a desire to bolster the Fed's regulatory credibility and address growing alarm about the unsustainable U.S. fiscal position.

Diamond's "an extraordinarily talented economist," said Alice Rivlin, another former Fed No. 2, speaking of Diamond. "He hasn't been a monetary person particularly but he's a very good macroeconomist and very smart."

If confirmed by the Senate, the three will help steer the Fed out of an unprecedented level of monetary stimulus and defend the Fed's regulatory capabilities before a sceptical Congress, which faults the central bank for lapses that contributed to a financial crisis.

Some analysts saw all three of the potential choices as likely to tilt the Fed towards the dovish side at a time of 9.7 percent unemployment.

Public dissatisfaction with the economy's performance has put the majority that Obama's Democratic Party enjoys in the House of Representatives and Senate at risk in congressional elections in November.