Janet Yellen: Good in an Earthquake, But Should She Lead the Fed?
With former Treasury Secretary Larry Summers pulling out of the running to lead the Federal Reserve, the White House now says that Janet Yellen is the frontrunner.
Yellen has close ties to the Bay Area. She was the head of the Federal Reserve Bank of San Francisco and a faculty member of the Haas School of Business at UC Berkeley, where she remains a professor emerita of economics. She also has a home here.
Not everyone’s on board with a Yellen appointment. She’s often referred to as a “monetary dove,” more concerned with unemployment than inflation. From the New York Times in April:
Ms. Yellen’s critics remain wary. They worry that she would not be sufficiently concerned about the possibility that inflation will accelerate as the economic recovery gains strength. If nominated, she could face opposition from Senate Republicans who have repeatedly expressed concern that the Fed’s campaign would destabilize financial markets and make controlling the pace of inflation more difficult.
“I think people read Janet Yellen’s speeches as saying that she puts a higher weight on joblessness compared to inflation” than the typical member of the Fed’s policy-making committee, said Vincent Reinhart, formerly the head of the Fed’s monetary policy staff and now the chief United States economist at Morgan Stanley. “And that includes Ben Bernanke.”
The question of her candidacy has also become embroiled with gender politics, as she would be the first woman to lead the Federal Reserve. The Wall Street Journal editorialized in July: “As an economist with long experience at the Fed, she doesn’t lack for professional credentials. But her cause has been taken up by the liberal diversity police as a gender issue because she’d be the first female Fed chairman.” In response, New York Magazine’s Jonathan Chait wrote that the criticism “[put] a fine point on the gender panic that is now infusing the hard-money cranks.”
One person who has spoken well of Yellen is former Fed chief Alan Greenspan. Again from the Times:
Mr. Greenspan said that he continued to hold Ms. Yellen in high regard. “I did listen to her more carefully because she articulates her position in a way that you can follow it analytically,” he said in an interview. “Intuitions are useless. Janet’s conversation and her presentations were factually based, and that always got my attention.”
Andrew Rose is an associate dean and chair of the faculty of UC Berkeley’s Haas School of Business. Rose has cowritten a number of papers with Yellen and also taught with her. He’s a strong supporter of her candidacy, and earlier this week KQED’s Mina Kim spoke with him to get a sense of her working style.
Mina Kim: What is the significance of the role of the Federal Reserve chair?
Andrew Rose: The chair leads the Federal Open Market Committee [FOMC], which establishes monetary policy for the U.S. and sets interest rates, bond purchases and things like that.
Kim: The position has been described as the first or second most powerful position on the planet…
Rose: I think that’s warranted. The president of the United States is clearly more important, but the person who’s responsible for the largest economy in the world and the person who’s also the fireperson in case of a financial crisis somewhere in the world – that’s a very important job indeed.
Kim: Yellen has been described as caring deeply about unemployment. Can you talk about how that focus would translate into monetary policy?
Rose: She’s spent her life doing theory and empirical work in trying understand the sources of unemployment. As a governor and now vice chair of the Fed, she has the ability to influence the rate of unemployment. That’s not to say she ignores inflation; the Federal Reserve has a dual mandate, and she cares about both.
She was quite calm throughout when I was sure the building was going to collapse and we were going to die together.
-Andrew Rose on Janet Yellen during the Loma Prieta quake
Rose: The primary objective is to keep the economic recovery going and if possible to speed it up. Inflation is low and quiescent at this point, and there seems to be no particular reason to worry about it. But the Fed always keeps an eye on inflation. So after keeping the recovery going, the second thing she’ll have to do is eventually reverse the enormous stimulus, the huge injection of money that’s been put into the economy.
Kim: What set of skills would Yellen bring to that challenge of easing up on the stimulus?
Rose: She’s an extremely accomplished economist, she has tremendous amount of experience both in monetary policy in general and running the Fed in particular. And she has enormously talented staff at her disposal. She’s also a consensus builder; she’s very persuasive and I don’t think she’ll have problems persuading the FOMC through the force of her arguments to follow her lead.
Kim: Yellen’s never steered a major institution through a financial crisis. How important is that?
Rose: Very few people have done that. Thank goodness for that, because we don’t have that many financial crises. She has a lot of experience from the sidelines. She was the president of the Federal Reserve Bank of San Francisco, which has certainly been a major player through the crisis. She also participated when she was a Federal Reserve governor during the Mexico crisis in 1994 and 1995.
Each of these crises is basically new unto itself. Ben Bernanke was an awesome choice to lead the Fed. But the crises he had studied from the 1930s were not really that relevant to what happened in 2007 and 2008. He’s basically a very smart, capable guy who spoke to a lot of relevant people, and Janet would be in exactly the same situation should there be another financial crisis.
Kim: What experiences have you had working with Yellen that are reflective of her leadership?
Rose: One of the things you do when you write a paper together is you argue about every single word, let alone sentence. The way she could persuade me and others to come around to her point of view was very compelling.
I will also say that in a case of a major earthquake, she’s a good person to have next to you, as I know personally from my experience during the Loma Prieta quake in 1989. We were stuck in a doorjamb together, and she didn’t raise her voice. She was quite calm throughout when I was sure the building was going to collapse and we were going to die together.
Kim: Do you think it’s important to Yellen to break the ceiling as the first female chair of the Fed?
Rose: I don’t know if it’s important to her. I don’t think it’s particularly important to the country per se. I think she’s by far the most experienced person ready to lead the Federal Reserve. I believe America should operate like a meritocracy, and that’s the reason I think she should get the job. The fact that she’s a woman is just icing on the cake.