Commentary Magazine


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Janet Yellen

President Obama is nominating Janet Yellen for the post of chairman of the Board of Governors of the Federal Reserve, perhaps the world’s most powerful financial position.

The media, with its obsession with firsts for minorities, will doubtless make a big deal of her being the first female chairman (women actually make up a majority of Americans, but never mind that).

More to the point, she is spectacularly well-qualified for the job. She graduated, summa cum laude, from Brown with a degree in economics and got her Ph.D. in the subject from Yale four years later. She has been an economics professor at both Harvard and Berkeley, worked as an economist in the division of international finance at the Fed, served as chairman of the White House Council of Economic Advisors under President Clinton (and at the same time was chairman of the Economic Policy Committee of the Organization for Economic Cooperation and Development), been a Federal Reserve governor, served as president of the Federal Reserve Bank of San Francisco, and been vice chairman of the Fed for the last three years. Oh, one more thing, her husband, George Akerlof, won the Nobel Prize in economics in 2001.

But, of course, résumés aren’t everything. The Federal Reserve’s most important job is to maintain the value of the dollar while keeping unemployment low. Those are often contradictory goals and the political pressures from sound-money advocates on one side and easy-money advocates on the other can be intense. Janet Yellen has a reputation for favoring soft-money policies and low interest rates. Rates have been very low in recent years to spur recovery from the recession, but at some point the Fed will have to begin to tighten or inflation will explode. It will also have to begin pulling back in some of the trillions of dollars it has created in recent years. It has recently been buying $45 billion in federal bonds and mortgage-backed securities a month, paying for them with newly-minted dollars.

Also, she will have to convince the other members of the Fed’s Open Market Committee to follow her lead. The Open Market Committee consists of the seven members of the Board of Governors plus the presidents of five of the 12 regional Federal Reserve banks. One seat is reserved for the president of the New York Fed, the other four rotate among the 11 other banks. It is the main decision-making body at the Fed. The chairman must get its agreement to act.

Barring some unexpected development, she will win Senate confirmation, probably losing only a few Republican votes. Then the tough part begins. I do not envy her.