Yellen Brings Impeccable Foresight and Soothing Continuity as Fed Chair

The White House has confirmed that President Obamarnwill announce his nomination of Janet Yellen to succeed Ben Bernanke as Chairpersonrnof the Federal Reserve’s Board of Governors. rn Yellen, who has served as FedrnVice Chair since 2010 will become the first woman to head a central bank amongrnmajor powers although there are a half dozen in the development world.  Her appointment, one commentator said thisrnmorning, will make her the most powerful woman in the country.  </p

Yellen has been a close ally of Bernanke and isrngenerally expected to continue his accommodative monetary policies as long as they’re warranted.  In March she said, that the Fed would keeprnits monetary stimulus in place even as the economy recovers.  “We would not consider selling assetsrnoff until the federal funds rate has increased, so that accommodation will bernin place for a long time,” probably until the economy was well into recovery.  She has also been noted for her willingnessrnto risk inflation in favor of stimulating employment.  </p

Despite her recently more dovish tone, she is not known for blindly adhering to an ideology, instead adapting to changing conditions–and quite well.  In July, the Wall Street Journal ranked FOMC member forecasts.  Yellen had the top score of .52, followed by Dudley at .45.  The lowest score was -0.01</p

Her nomination was widely expected after formerrnTreasury Secretary Lawrence Summers, rumored to be the President’s firstrnchoice, removed his name from consideration last month.  Summer’s potential nomination had alreadyrnraised the possibility of a confirmation battle in the Senate, coming not fromrnRepublicans but from the President’s left. rnYellen is expected to face opposition from some Republican senatorsrnbecause of her stated monetary policies.</p

She was among the first to warn of the housingrnbubble, doing so as early as 2005 while President of the Federal Reserve Bankrnin San Francisco.  She told an audiencernat the Fourth Annual Haas Gala, that there were several reasons why monetaryrnpolicy might not be the best tool to deflate such a bubble.   </p

“For one thing, no one can predict exactly how much tightening would bernneeded, or by exactly how much the bubble should be reduced. Beyond that, arntighter policy to deflate a housing bubble could impose substantial costs onrnother sectors of the economy that would lead to equally unwelcome imbalances.rnFinally, it’s possible that other strategies, such as tighter supervision orrnchanges in financial regulation, would not only be more tailored to thernproblem, but also less costly to the economy. rnHer bottom line, she said, was that monetary policy should react tornrising home prices or prices of any other asset “only insofar as they affectrnthe central bank’s goal variables-output, employment, and inflation” </p

When the Board of Governors met to discuss the looming financial crisis inrn2008, Yellen was said to be among the most pessimistic in the room.  She said, “The possibilities of a creditrncrunch developing and of the economy slipping into recession seem all too real.rnThe “shadow banking system was freezing up, she said, and the economy wasrnlikely to slow significantly.</p

Yellen became Vice Chair of the Board of Governors on October 4, 2010.  She began that four year term simultaneousrnwith a term on the board that will last until January 31, 2024.  Prior to her appointment as Vice Chair, Dr.rnYellen served as President and Chief Executive Officer of the Twelfth DistrictrnFederal Reserve Bank, at San Francisco. </p

A macroeconomist specializing in employment issues, she holds a Ph.D. in economicsrnfrom Yale granted in 1971. She graduated summa cum laude from Brown, also inrneconomics, in 1967 and was a member of the faculty at Harvard University and isrna Professor Emeritus at the University of California at Berkeley where she wasrnthe Eugene E. and Catherine M. Trefethen Professor of Business and Professor ofrnEconomics.  </p

Yellen, 67, is married to Nobel prize-winning economist George Akerlof, Therntwo are millionaires with net worth estimated by The Wall Street Journal as between $4.8 and $13 million.

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