President Obama will nominate Janet Yellen to be chair of the U.S. Federal Reserve on Wednesday, putting an end to months of speculation about who would replace the current chair, Ben Bernanke. Bernanke’s term is set to expire on January 31, and observers have long assumed that he would not seek another term.
Yellen’s nomination will have to be confirmed by the Senate, but her path to the position seems secure. Not only does she have an enormous amount of support behind her, but the other serious contender for the position, former Treasury Secretary Lawrence Summers, withdrew his name from consideration in September.
If her nomination is approved, Yellen will become one of the most powerful policymakers on the planet. As chair of the Fed, she will not only be the guiding hand of U.S. monetary policy, but she will be the nation’s top financial watchdog.
So, who is she?
Yellen, 67, is a Democrat. She received a degree in economics from Brown University in 1967, and in 1971 received a Ph.D. in the subject from Yale University. She taught at Harvard for about five years before her first engagement with the Federal Reserve, in 1977 and 1978 as an economist in the Division of International Finance.
She spent the next two decades in various positions at the Haas School of Business, the London School of Economics, and the University of California, Berkeley, and become a member of the Board of Governors of the Fed in 1994, holding the position until 1997. From then until 1999, she was chair of President Bill Clinton’s Council of Economic Advisers. She served as president and CEO of the Federal Reserve Bank of San Francisco between 2004 and 2010, and currently serves as vice chair of the Fed.
Fun fact — she is married to George Akerlof, a Nobel-prize winning economist.
2. She is dovish
Yellen is considered by many to be something of an inflation dove. This means that she is generally more comfortable with low interest rate policies and is less troubled by spurts of relatively high inflation than so-called inflation hawks. This position is consistent with the Fed’s highly accommodative monetary stance, which was championed by Bernanke, who is also a dove.
With this in mind, most observers expect her to be in no rush to curb asset purchases and raise the federal funds rate, preferring to encourage growth. This position is perhaps most infamously captured by this statement she made during a policy meeting held by then-Fed Chair Alan Greenspan. Yellen argued against inflation targeting as a policy tool:
“Fortunately, the goals of price stability and output stability are often in harmony, but when the goals conflict and it comes to calling for tough tradeoffs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target. …
When I look at the behavior of the FOMC and other central banks, I simply can’t find a lot of cases in which monetary policy has ever been driven by an exclusive focus on inflation performance.”
3. Strong track record
In many ways, central bankers are like physicians — and in some ways, the market is a hypochondriac, but that’s beside the point. Central bankers are constantly trying to diagnose the condition of the economy and prescribe medication for what ails it in times of trouble.
The problem with both medicine and economics is that they are tremendously complex and not completely understood, and making accurate predictions is insanely difficult. Because of this, it’s also hard for an observer to tell the difference between someone who is making accurate predictions and someone who is just getting lucky.
Fortunately for us, The Wall Street Journal has analyzed the economic predictions made by U.S. Federal Reserve policymakers between 2009 and 2012 and ranked them based on accuracy. Yellen scored a decisive victory.
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