Janet Yellen was announced by President Obama today as his nomination for the next head of the Federal Reserve. With widespread support from Senate Democrats, a distinguished career, and a reputation for building consensus, she is likely to be confirmed, becoming the first woman ever to lead America’s 100 year-old central bank.
Yellen has been with the Fed on and off since the 70’s. In fact, she met her husband, Nobel Prize winning economist George Akerloff, while both worked at the Fed in 1977. Yellen is considered a team player, but is also considered a crusader for higher employment, even when those around her are more concerned with inflation.
The current Fed chair, Ben Bernanke, will be retiring January 31 at the end of his second four-year term. Obama’s original pick for the job, Larry Summers, removed himself from consideration after it became increasingly clear that leading Democrats opposed his nomination. Yellen is widely perceived as someone who will maintain far more continuity with the policies of her predecessor Bernanke, under whom she served as vice-chair, than Summers would have.
Yellen steps into the job at a crucial and difficult time for the Federal Reserve. The current shutdown of the federal government by House Republicans, combined with a possible default on the nation’s debt, stands to create an economic crisis for America. Already, because of anemic growth from the previous financial crisis, the Fed is providing unprecedented economic stimulus and keeping interest rate near zero. At the moment, the Federal Reserve pumps $85 billion into the U.S. economy every month with bond purchases.
Last month, the Fed was supposed to reduce those purchases, but they surprised Wall Street by not doing so, citing the uncertainty created by the looming shutdown and possible debt default. Continuing this stimulus is designed to counteract the economic damage inflicted by the current dysfunction in Congress.
Announced today at 3pm Eastern Time, incoming Fed chair Janet Yellen will enter the public eye with a reputation as a crusader for employment, even at the expense of allowing a small amount of inflation. Her inflation policies are called “dovish” (rather than “hawkish”) by those who believing keeping inflation low should be a priority.
One of those who thinks of Yellen in these terms is Senator Bob Corker (R-Tennessee), who is likely to vote against Yellen’s nomination. “I voted against Vice Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy,” Corker said Tuesday night.
Yellen herself would be unlikely to debate Senator Corker’s perception of her views. She has said openly that she is more concerned with employment as a priority, willing to let inflation rise if necessary to keep unemployment low. In 1996, as a Fed board member, she argued against then-Fed Chair Alan Greenspan’s plan to bring inflation down to zero, asserting that a little inflation is actually good for the employment rate.
A working class overachiever whose parents lived through the Depression, Yellen is considered mild-mannered, but also has a reputation for being extremely well-prepared even at informal meetings. Between stints at the Fed over the years, she has been a teacher at Berkeley and the head of the San Francisco Fed. In fact, though she did not act directly to stop the financial crisis, Yellen foresaw the subprime housing loan bubble bursting, and urged banks to examine their level of risk.
In the current toxic environment political environment, confirmation is likely to be a harrowing process, even though Yellen is likely to be confirmed. Senate Republicans who would prefer someone more hawkish on inflation (like Summers) are almost certainly going to ask a lot of questions. When Obama announced Janet Yellen as his Fed Chair nominee today, her battle began—and even after what may be a grueling confirmation, the real challenge will be steering the American economy.
Written By: Jeremy Forbing