The case for Janet Yellen as Federal Reserve chair

I wanted to express some of the reasons why I feel that Janet Yellen would be an outstanding choice to head the Federal Reserve.

Janet Yellen
yellen.jpg

I have known Governor Yellen for many years, from the days when she was a professor at Berkeley to her distinguished service within the Federal Reserve. I have had an opportunity to interact with her in a variety of settings.

Yellen is brilliant and tough. She displays this not by needing to prove to you that she’s the smartest person in the room, but instead by always asking the right questions. If someone disagrees with her, her first instinct is not to try to bully them, but instead to try to understand why they have reached a different conclusion than she has. Because of this attribute, Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation.

And I think her track record, both as president of the Federal Reserve Bank of San Francisco and as governor of the Federal Reserve, supports that conclusion. If you examine her speeches and public statements, you will find that she has been one of the most accurate economic forecasters within the Federal Reserve, or for that matter compared with any private-sector economic analysts.

She has a reputation among some as a “dove”, but I would caution against oversimplification. For the last 5 years, the U.S. economy has experienced extremely high unemployment coupled with very low inflation. If you set ideology aside, and grant yourself the benefit of 20-20 hindsight, it is extremely hard to make the case that monetary policy has been too stimulative over this period. If you were one of the “doves” over the last five years, you should congratulate yourself for having understood the situation accurately. Many others did not.

Now, if a belief in the need for more monetary stimulus was part of someone’s inherent mindset, and a philosophy they would insist on in any new situation, then I would have serious misgivings about them making key decisions for the Federal Reserve. But based on long interaction and observation, I really don’t think that’s something to be concerned about with Janet Yellen.

Update July 29 at 7:29 a.m.: The Wall Street Journal this morning provided an analysis of the accuracy of forecasts expressed by Fed officials over recent years. In their analysis, Janet Yellen came out at the very top.

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33 thoughts on “The case for Janet Yellen as Federal Reserve chair

  1. BigEd

    Why is being “tough” a positive attribute for the Chairman of the Federal Reserve Board??
    What if she is “tough” but her policies are wrong?

  2. Agent22276

    Let us be honest and frank. The Fed Chairperson is the facilitator of the desires of the owners of the TBTE banks, the same people who own the Fed. The Fed Chairperson decides virtually nothing, apart from the type and color of wallpaper in his/her office, or what to have for lunch at the Fed cafeteria.
    Yellen will be the next Fed Chairperson if the owners of the TBTE banks and of the Fed decide she will be. One can be absolutely certain that whoever is chosen will follow the precise dictates of the owners of the TBTE banks and the Fed, irrespective of sex, ethnicity (although Jewish is preferred), style, or preferences for wallpaper color.
    Therefore, whatever the owners of the TBTE banks want, so shall they receive.

  3. Rick Stryker

    Yes, Yellen is an outstanding choice. But there are other outstanding choices as well.
    Your point that “She displays this not by needing to prove to you that she’s the smartest person in the room, but instead by always asking the right questions. If someone disagrees with her, her first instinct is not to try to bully them, but instead to try to understand why they have reached a different conclusion than she has.” serves to contrast her style with the other often-mentioned candidate that you have not named. I prefer that style myself.
    But there are some points in the other candidate’s favor:
    1) The alternative candidate has much broader experience, having served in academia, government, and industry.
    2) The next chairman will have to shepherd the Fed through the unwinding of quantitative easing. Wouldn’t it be a good idea to bring in someone with a fresh perspective, someone who didn’t create the QE policy? Shouldn’t we avoid potential groupthink by mixing things up a bit?

  4. RB

    From Bloomberg:
    Among the pleas that Summers made: a seat at the table at cabinet meetings, a chauffeured car, and Secret Service protection, according to the officials.
    “I would characterize them as requests, not demands,” said Emanuel, who declined to enumerate all the specific ones that Summers made. “He did want to be at the cabinet table,” he said. “If I’m not mistaken, that was granted.”
    Summers’s petition for a so-called “portal-to-portal” service wasn’t allowed. The White House’s supply of car-and-drivers had already exceeded demand.

    Jeez, you want to limit the guy, you give him a driver and not a place at the cabinet table. The government’s priorities are totally warped.

  5. Ricardo

    Yellen will be the next Fed Chair. There is only one criteria for being selected in this era. The Democrats are making the next two elections about being a “woman” defined as a progressive female. Yellen will be the next FED Chair because she is a progressive female. Period!
    The sad thing there are many, much more competent women but they do not wear the Progressive lable. The IRS scandal and the facts that the President of the United States will not let those who are “conservatives” into his speeches, prove that our government majority – both Republican and Democrat(not to be confused with a national majority) – considers Progressive credentials first. Competence is far down the list.

  6. Steven Kopits

    Well, if Jim’s weighed in, then we do know how the next pope will be elected.

  7. Ricardo

    JDH wrote:
    She has a reputation among some as a “dove”, but I would caution against oversimplification. For the last 5 years, the U.S. economy has experienced extremely high unemployment coupled with very low inflation. If you set ideology aside, and grant yourself the benefit of 20-20 hindsight, it is extremely hard to make the case that monetary policy has been too stimulative over this period. If you were one of the “doves” over the last five years, you should congratulate yourself for having understood the situation accurately. Many others did not.
    Professor,
    I am not sure what you are saying here. Is she a “dove” because she believes in a moderate amount of QE, or because she believes that QE holds down interest rates and inflation? Your comment on low inflation and high unemployment has a strong ring of Phillips curve. Are you saying that Yellen would enter into a more aggressive expansion of the money supply in an effort to create inflation and drive down unemployment? The word “dove” in this context does not have a very precise meaning. What do you mean by “dove?”

  8. ReturnFreeRisk

    The blogosphere agrees that recent communication at the Fed is a disaster. yet, no one will even bring up Yellen’s name, a person credited with crafting the communication policy.

  9. Barkley Rosser

    I completely agree with this post by Jim. Very simply, Janet Yellen is the most qualified person for this job. Her forecasting track record is outstanding, distinctly superior to that of persons mentioned prominently as rival candidates, and she has the collegial but strong personality needed for this most difficult position.
    It also does not hurt that she is married to the brilliant George Akerlof, who, no doubt, helps serve as a sounding board.

  10. Steven Kopits

    For those interested, I am scheduled to speak at the Center for Strategic and International Studies in Washington DC on August 7th, 10 am, with a talk entitled
    “Reaching the Limits of America’s Energy Boom”

  11. JDH

    Get Rid of the Fed: I’m not sure what you’re asking about.

    We receive hundreds of spam comments daily, half of which get past our initial filters and have to be deleted by hand. That is usually done very quickly, with the consequence that every now and then we mistakenly delete a legitimate comment.

    If you ever submit something that you think is a legitimate comment and it does not appear, try resubmitting it.

  12. 2slugbaits

    I think her track record, both as president of the Federal Reserve Bank of San Francisco and as governor of the Federal Reserve, supports that conclusion.
    And therein lies the problem with Yellen getting the Head Fed job: she’s already on the Fed, so promoting her adds nothing to the Fed’s institutional knowledge. A promotion would be well-deserved and in terms of competence she’s first among equals. What I’m more concerned about is who would replace her if she gets the nod. The 2014 FOMC committee looks especially reactionary (Plosser, Kocherlakota and Fisher), so I’m more concerned about the total number of dovish votes on the FOMC than I am which member holds which title. Maybe Stanley Fischer could be persuaded to take over the Vice Chair job if Yellen gets picked. On the other hand, a Plosser/Kocherlakota shouting match with Larry Summers would be something to watch, not to mention Summers on C-SPAN testifying before the GOP House.

  13. Johannes

    James, you’re a late follower, as that’s already decided : Janet Y.
    But I can see that you are willing to put a nice pic of her into your post, and that’s goodwill I suppose and not mindset propaganda. (but must say she does not look very convincing).
    Anyway, Janet stands for easy money (Stanford club), and this means : …

  14. Ricardo

    Professor,
    I am still curious how you define the terms “dove” and “hawk” as it relates to monetary policy. As Slug enlightens us a “dove” is actually very aggressive and autocratic. Those who wish to curb the FEDs distortions of the market are called “hawks.” Is this your definition of the terms?
    The use – or misuse – of terms like “dove” are double-speak doing more to distort our understanding of the positions Yellen would take on FED intervention that giving insight. A little clarity would be welcome.

  15. JDH

    Ricardo: “Hawk” and “dove” are not terms I particularly like either; I use them here only to address a concern that others have raised.

    If you want a working definition, if in a given situation person A wants more stimulative monetary policy and person B wants monetary tightening, then I would describe A as the dove and B as the hawk. However, the same two people may not have the same policy recommendation in a different situation, and that is the point I make above.

  16. Steven Kopits

    I agree on the hawk and dove thing.
    Personally, I see the Fed as dealing with primarily technical, not ideological, calls.
    If you have the same answer for every situation, then you’re probably not qualified to be Fed chair.

  17. Patrick R. Sullivan

    ‘Why is being “tough” a positive attribute for the Chairman of the Federal Reserve Board??’
    William McChesney Martin wasn’t tough in the face of LBJ’s bullying, nor was Arthur Burns with Richard Nixon. That’s why.

  18. Ricardo

    Thanks Professor. Sorry for my impatience. I think I understand how you are using the terms now.

  19. don

    “Now, if a belief in the need for more monetary stimulus was part of someone’s inherent mindset, and a philosophy they would insist on in any new situation, then I would have serious misgivings about them making key decisions for the Federal Reserve.”
    I would say the bigger danger is failure to appreciate the full risks and costs of further monetary “easing.” Of course, everyone wants Janet now – Wall Street wants more candy and liberals think easy money improves employment. But it also blows asset bubbles and puts stress on trade partners, some of whom are in bad shape as it is (the euro area).
    Larry is on record saying the big banks should pay for the implicit TBTF insurance. Probably why Wall Street gripes about him. Has Janet dared make such points? Can we expect anything to get done on this front under her? If we enter uncharted waters, I would feel much better with Larry at the helm, unlikable as he is. If we don’t hit uncharted waters, any wishy-washy can do the job of Fed chair.

  20. Get Rid of the Fed

    JDH, I usually have comments deleted or get banned when I get critical of economists. That is why I’m asking. Scott Sumner has been an exception that I remember.

  21. Ricardo

    The WSJ gets it right:
    Ms. Yellen is also seen, in and outside the Fed, as a leading monetary dove. That isn’t limited to her backing for Mr. Bernanke’s monetary interventions since the 2008 panic. We’ve followed Ms. Yellen for 20 years and can’t recall a key juncture when her default policy wasn’t to keep spiking the punchbowl. Many Democrats think the Fed needs to keep interest rates at near zero through the 2016 election, and Ms. Yellen is their woman. [emphasis mine]

  22. JDH

    Get Rid of the Fed at July 30, 2013 10:35 PM: At Econbrowser we approve pretty much everything that appears to be a legitimate non-spam comment. We draw the line at what we perceive to be racially charged comments or over-the-top incivility.

  23. Ricardo

    Get Rid of the Fed,
    I have written some very biting posts here – I admit that I have sent an email to Menzie apologizing for some things I have said – and all of my posts properly posted by me have been posted. If you are not seeing some of your posts I would suggest that you verify that you are inputting them properly.
    This site is one of the most open on the web.

  24. 2slugbaits

    Ricardo The WSJ op-ed page seldom gets anything right, and their Yellen comments are no exception. Yellen believes in flexible policies that try to maintain price stability consistent with the underlying NAIRU. She takes the Fed’s dual mandate seriously. Sometimes the Fed should loosen money, sometimes the Fed should tighten money. She doesn’t believe in a single policy for all season…unlike the WSJ which seems to think that tax cuts are the cure for every problem in every conceivable economic context.
    And do you really believe that the WSJ op-ed writers have been following Yellen’s career for 20 years? Really? If so, then how did this miss very clear statement from March 1996:
    http://www.thefreelibrary.com/Monetary+policy%3A+goals+and+strategy.-a018481622
    Krugman has a nice take on the doves/hawks terminology. Krugman borrows form Karl Smith and describes inflation hawks as those who believe in the doctrine of “immaculate inflation.” You fit the description perfectly. It wasn’t all that long ago that you kept calling Bernanke “Helicopter Ben” and you were warning us about Zimbabwe just around the corner. This isn’t zerohedge.com where goldbugs are forever trapped in 1979.

  25. Vangel

    If Yellen gets appointed you would be wise to buy a lot of physical gold and stay away from the USD. She is a typical Keynesian who is so enamoured by aggregates that she misses the obvious problems in the economy. If she were in charge of the Fed the government would be allowed to grow as much as possible until the bond market finally stepped in and put an end to the reckless money and credit creation. This is time for logic and reason, not personal tastes.

  26. Ricardo

    Slug – Two comments, if you believe that greater than 7% unemploymnet (even with government distortions) and a loss of 95% of the purchasing power of the dollar is the FED honoring the dual mandate then I have some swamp land in Florida I would like to sell you.
    Secondly, the whole idea of price stability is a Keynesian concept and is part of the reason we have our current monetary problems. We should not have price fixing of goods and services. Prices must be free to fluctuate in response to supply and demand not some whim of a FED Chair. As long as money is seen as a driver of economic activity rather than a tool of trade there will be huge monetary errors causing more and more problems.
    Yellen is in the monetary error camp. But I have to admit I like her better than her presumed rival.

  27. Get Rid of the Fed

    So am I allowed to say economists should become victims of their own policies instead of beneficiaries?

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