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