By Mark Felsenthal and Jonathan Spicer
WASHINGTON/NEW YORK, Aug 28 (Reuters) - The White House has yet to begin vetting Federal Reserve Vice Chair Janet Yellen to take over the top job at the U.S. central bank, according to three sources with knowledge of the situation, after one report said the process had begun for her main rival for the job.
Picking a replacement for Fed Chairman Ben Bernanke, whose second four-year term ends in January, is one of the most important jobs President Barack Obama faces. The White House has said the president has not made up his mind and that no announcement is likely until the fall.
Even so, based on comments by the president and news reports, the selection process has become what appears to be a two-person competition between Yellen and former White House economic adviser Lawrence Summers.
CNBC on Monday reported that Summers is likely to be named Fed chairman in a few weeks but that he was still being vetted and that the process might take a little longer. On Tuesday, CNBC described its source as someone "pretty close but somewhat removed" from the process. Reuters was unable to verify the report.
Many outside observers believe Summers' close association with Obama makes him the favorite, and the suggestion that Obama has yet to begin the process of determining whether there may be something problematic in Yellen's background may reinforce that view.
"I don't think it's dispositive. But (it's) an indication," said a source close to the White House.
All sources declined to be named given the sensitivity of the decision. The White House declined to comment on the issue and a Fed spokeswoman said Yellen could not be immediately reached for comment.
The formal vetting process begins in the White House. Once the president settles on candidates, the Federal Bureau of Investigation is asked to do an investigation and check information.
An attorney who has advised clients on the White House vetting process cautioned that even if vetting had not yet begun for Yellen that may mean little about her prospects, especially since she was confirmed by the Senate for the vice chair post just three years ago.
"It might be that given the stories in the media about Summers' recent financial engagements, an official might want to weigh those reports and determine whether they're valid," said Robert Kelner, a lawyer with Covington and Burling.
Summers has done work for Citigroup Inc, Nasdaq, hedge fund D.E. Shaw and venture capital firm Andreessen Horowitz. Those ties worry critics who feel he may be too close to the financial firms the Fed must regulate.
CAMPAIGNING FOR JOB UNDERWAY
The succession process comes at a delicate time for the Fed.
The central bank has held interest rates near zero since late 2008 and has more than tripled its balance sheet to around $3.6 trillion by buying bonds to drive other borrowing costs lower.
Now, it is debating when to slow its bond purchases. Bernanke has said the central bank plans to reduce its purchases by year-end and expects to draw them to a close by mid-2014, a prospect that has jolted financial markets worldwide.
Whoever takes the helm at the central bank will have to steer that process and the eventual removal of the extraordinary stimulus that the Fed has pumped into the economy.
Obama said at a news conference in August that he was considering both Yellen and Summers for the job.
The process of replacing Bernanke, who has earned high praise for steering the U.S. economy through a period of great financial turmoil, has been marked by unusual campaigns on behalf of leading candidates to replace him.
Associates of Summers have reportedly organized to keep his name and accomplishments in public view, while two-thirds of the Democratic caucus in the Senate has signed onto a letter expressing support for Yellen.
The process has been so unusual that the Washington Post called it "unseemly" in an editorial and said the president's open discussion of the candidates risked damaging the Fed's independence from politics, which is seen as essential to its credibility.