Commentary Magazine


Topic: Janet Yellen

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.

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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.

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The Next Fed Chairman

The chairman of the Federal Reserve is, arguably, the second most powerful office in Washington. So who gets to occupy that office is always subject to politics and fierce lobbying. But since the Democratic Party holds the White House and the Senate, the arguments over whom to appoint are not about fiscal policy or basic economic philosophy, they’re about what sex the next chairman should be.

There has never been a female Fed chairman and so, feminists argue, the next one must be. Personally I wonder when, if ever, this first-X-to-be-Y obsession of the left (and journalists, but I repeat myself) will end. It is more than abundantly clear that one’s gender, ethnic background, race, etc. are no longer any impediment to gaining high political (or corporate) office. But I suspect that twenty years from now there will still be breathless headlines heralding the appointment—for the first time in history!—of a left-handed gay former dentist of Lithuanian descent to the office of third assistant deputy undersecretary of homeland security.

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The chairman of the Federal Reserve is, arguably, the second most powerful office in Washington. So who gets to occupy that office is always subject to politics and fierce lobbying. But since the Democratic Party holds the White House and the Senate, the arguments over whom to appoint are not about fiscal policy or basic economic philosophy, they’re about what sex the next chairman should be.

There has never been a female Fed chairman and so, feminists argue, the next one must be. Personally I wonder when, if ever, this first-X-to-be-Y obsession of the left (and journalists, but I repeat myself) will end. It is more than abundantly clear that one’s gender, ethnic background, race, etc. are no longer any impediment to gaining high political (or corporate) office. But I suspect that twenty years from now there will still be breathless headlines heralding the appointment—for the first time in history!—of a left-handed gay former dentist of Lithuanian descent to the office of third assistant deputy undersecretary of homeland security.

The feminist wing of the party wants Janet Yellen, currently the vice chairman of the Fed’s board and former president of the San Francisco Federal Reserve Bank. The Wall Street wing of the party, led by Robert Rubin, wants Lawrence Summers, former secretary of the treasury under Bill Clinton and former director of the National Economic Council under Barack Obama. Both have had distinguished careers as economics professors. In other words, both have first-class résumés for the job.

And there is not a whole lot of difference between them in terms of policy. Yellen has never met a monetary stimulus she didn’t like, and that would make Wall Street nervous. Summers is currently a consultant at Citibank (where Democratic financial politicians wait out their occasional exiles from Washington) but is hardly a fiscal conservative. Neither is likely to place a priority on getting the Fed out of the stimulus game and back to maintaining price stability.

The Wall Street Journal is not terribly impressed with either candidate. The New York Times (are you sitting down?) prefers the more liberal Janet Yellen. But, except to the gender-obsessed, it won’t make a lot of difference which one wins this fight.

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