Who is Janet Yellen?
Janet Yellen, 67, who has been the Fed’s vice-chairwoman since 2010, would be the first woman to run the central bank. A native of Brooklyn, she was previously president of the Federal Reserve Bank of San Francisco, a White House adviser, a Fed governor during the Clinton administration and a long-time professor at the University of California, Berkeley. Yellen would be the first Democrat to run the Fed in almost 30 years. President Ronald Reagan appointed Alan Greenspan, and President George W. Bush first named Ben Bernanke.
What is her philosophy?
She is described by one former colleague as “a small lady with a large IQ,” as she forged an academic career at Berkeley as a member of the economics counterculture that attacked the dogma of efficient markets. She has long argued that markets benefit from regulation to prevent abuses and limit disruptions of economic growth.
She wasn’t the first choice
President Barack Obama’s first choice for the job — Lawrence H. Summers, a former adviser to the president — dropped out of the running on September 15 in the face of opposition from Democratic senators. Until recently, she was telling friends that she did not expect to be nominated because Obama had made it clear that he wanted Summers to the Fed job. But when Summers withdrew his name on September 15, Yellen became the front-runner by elimination.
As speculation swirled about the appointment, much of the debate revolved not around economic policy but gender. Summers, while he was president of Harvard, once wondered aloud whether inherent differences between men and women helped explain a lack of female science professors, causing some women’s groups to oppose his selection to lead the Fed.
Was anyone else in the running?
President Obama had also interviewed Donald L. Kohn, a former Fed vice-chairman under Bernanke and a close adviser to Greenspan — who preceded Bernanke as the chairman — for the top job. But most Fed analysts did not take his candidacy seriously. Obama also seemed interested in considering his former treasury secretary, Timothy F. Geithner, for the job. But even after Summers withdrew, Geithner said he was not interested, based on personal considerations.
What are Yellen’s challenges?
The most important decisions awaiting Yellen involve how quickly to wind down the expansionary monetary policy engineered by the current chairman, Ben S. Bernanke. Yellen worked closely with Bernanke, whose term ends on January 31, in shaping and building support for that approach in an effort to stimulate the economy and bring down unemployment. If anything, Yellen has wanted the Fed to take even more aggressive measures to lift economic growth, believing the risks of inflation are modest. But her views and Bernanke’s appear close enough that markets have considered her potential ascension as a sign of continuity.
So will she provide continuity?
Bernanke, the Fed’s leader since 2006, announced last month that the central bank would postpone any retreat from its stimulus campaign for at least another month and possibly until next year, because of concerns about the economy. The move surprised economists and investors on Wall Street. Summers’ supporters, including many of the president’s closest advisers, had raised some concerns about Yellen in recent months. They said that institutions benefited from fresh leadership and argued that Yellen’s central role in creating the Fed’s current policies could inhibit her ability to make necessary changes.
What does the Fed do?
The Fed’s two main tasks are helping to regulate the financial system and altering interest rates in response to economic growth and inflation. Regulating the financial system has become a much more important part of the Fed’s responsibilities in the wake of the financial crisis.
What does she bring to the table?
A decade ago, Yellen was one of the first public officials to describe rising housing prices as a bubble that might pop, with damaging consequences for the broader economy. Still, as president of the San Francisco Fed, she did not translate her concerns into actions that might have prevented some of the worst effects of the bubble. But in the aftermath of the resulting recession, she accurately predicted that the recovery would be painfully slow and that there was little reason to worry about inflation, a view that led her to press for the Fed to expand its efforts to revive the economy. No Federal Reserve chairman has been as deeply steeped in both the theory and practice of central banking as she is.
What the relationship with politicians?
Bernanke — who has underestimated the economy’s weakness at several junctures during the last few years — said that although conditions were improving, the Fed still feared a turn for the worse. He has expressed concern that Congress is damaging the economy through budget brinkmanship and could cause more damage in the weeks to come. Many Democrats believe Yellen is likely to view Wall Street more sceptically than Summers, even though her views are closer to the centrist stance of the administration than to the positions of liberal Democrats on several regulatory issues. She is not, for example, a supporter of the push to break up large banks.
What happens next?
Her four-year appointment as chairwoman must be confirmed by the Senate. There, she is not likely to face much opposition from Democrats. Few Senate Republicans had taken a stance on her potential selection, although Republicans have frequently expressed concern that the Fed’s policies may destabilise financial markets and eventually accelerate inflation. Republican senators have typically threatened to filibuster major bills and nominations in recent years, suggesting Yellen may need 60 votes — including a handful of Republican votes — to be confirmed. Democrats hold 52 seats in the Senate, and the chamber’s two independents often vote with the Democrats. Yellen’s confirmation will be part of an autumn filled with economic debates in Washington. The White House and Republicans in Congress will be also battling over a bill to continue financing the government and a bill to increase the nation’s borrowing limit to maintain the nation’s creditworthiness.
Is being a woman important?
Some Democrats also argued that Obama should not pass up the chance to break a glass ceiling, given Yellen’s qualifications and her position as the Fed’s second-ranking official. No woman has held one of the very top jobs in economic policy-making — Fed chairman or Treasury secretary — nor has a woman led any other major central bank in the world.
What’s her personality like?
Her supporters have praised her as self-effacing and keenly intelligent. “She makes an argument on the merits and she sticks with it,” said Alan S. Blinder, an economics professor at Princeton and former Fed vice-chairman, who argued for her nomination. “And she’s good at articulating an argument in a way that doesn’t leave people on the other side hopping mad at her.” Yellen, slight and white-haired, has a personal style that more closely resembles Bernanke’s soft-spoken manner than that of some previous Fed chairmen, like Paul Volcker. The force of her arguments can catch people by surprise.
What’s her track record?
President Bill Clinton nominated her to a seat on the Fed’s board of governors in 1994 — at the suggestion of Laura D’Andrea Tyson, a Berkeley friend and colleague of Yellen — and then named her head of his Council of Economic Advisers in late 1996. She later returned to Berkeley, and in 2004 became president of the San Francisco Fed, where she remained during the worst of the financial crisis before returning to the Fed as vice chairman in 2010.
What drives her?
Kevin Hassett, who was a staff economist at the Fed when Yellen arrived in 1994, recalled that she started to eat lunch regularly in the staff cafeteria to subvert the hierarchical system that limited communication between Fed governors and the vast army of research economists. “It showed a kind of grace and wisdom that is very unusual in Washington,” said Hassett, now a fellow at the right-leaning American Enterprise Institute. Yellen has said that she became interested in economics as a way of thinking logically about how to help people. As a graduate student at Yale, she studied under the Nobel laureate James Tobin, a leading proponent of the view that governments could mitigate recessions.
What’s her personal life like?
She built an academic career at Berkeley together with her husband, the economist George A. Akerlof, whom she met in a Fed cafeteria in the late 1970s when they were staff economists. Much of their work together highlighted flaws in the economic theory that markets operate efficiently, a theory that basically treats government policy as inherently costly. Their work showed that government, including central banks, could indeed adopt economic policies that improved people’s lives. Colleagues and people familiar with their work said that Professor Akerlof, who shared the Nobel in economic science in 2001 with Joseph E. Stiglitz and A. Michael Spence, was the more creative thinker, while Yellen was the more rigorous.
Compiled from agencies
