President Barack Obama nominated Janet Louise Yellen on Oct. 9, 2013, to become the next chairman of the Federal Reserve Board, succeeding Ben Bernanke, who will remain a board member until 2020. Obama called Yellen “one of the nation’s foremost economists and policy makers” who was “renowned for her good judgment.” Her term beginning Feb. 1, 2014, lasts four years and can be extended by the president then in office. Yellen shares many of the same views about the U.S. economy as Bernanke, and most economists expect a fairly seamless transition from his leadership to hers. Her first major decisions will deal with the Fed’s current economic stimulus policies and the unemployment rate.
Background and History
Janet Yellen was born into a middle-class Jewish family in Brooklyn, N.Y. on Aug. 13, 1946. Her mother was a teacher and her father was a doctor, and she eventually became editor of the Fort Hamilton High School newspaper, from which she graduated as valedictorian. She graduated summa cum laude with an economics degree from Brown University in 1967 and went on to receive her Ph.D. from Yale University in 1971. She then worked as a professor at several prestigious universities, including Harvard, The London School of Economics and the University of California at Berkeley. In 2004 she became president and CEO of the Federal Reserve Bank of San Francisco, where she has been credited with foreseeing the subprime mortgage crisis more accurately than her peers.
She has also been a member of a number of economic committees and councils, including the Organization for Economic Cooperation and Development, the U.S. Council of Economic Advisors and the American Economic Association. She served as a governor for the Federal Reserve Board from 1994-97 and has also been an advisor for the U.S. Congressional Budget Office. She was a research associate for the National Institute of Economic Research and was on the board of directors for the Pacific Council on International Policy. She has also held fellowships for the National Association of Business Economics, MIT and Guggenheim.
Her most recent tenure has been as the Fed's vice chairman, to which she was appointed for a four-year term on Oct. 4, 2010. This date also marked the beginning of a 14-year term that she will serve simultaneously as a Fed board member. Yellen has used her position to convince the Fed to use a 2% annual target for inflationary growth. The Democrats urged Obama to appoint Yellen as chairman instead of former Secretary of the Treasury of the United States Larry Summers due to her “impeccable resume, focus on unemployment and solid record as a bank regulator.”
Like her predecessor, Yellen has been a strong dove, although many of her peers maintain that this has simply been due to current economic conditions, and that she could become a hawk under appropriate circumstances. She will also be the first democrat to chair the Fed in nearly 30 years, although she has backed Bernanke’s bond-buyback program and is expected to continue to enact and perhaps even expand an economic stimulus policy to boost the economy. She has sought to emulate the philosophy of James Tobin, an economist who believed that an economy can be rescued from recession through governmental intervention.
She and her husband, George Akerlof, are both Keynesian economists who believe that economic markets are fundamentally flawed and need governmental regulation to function correctly. They both created economic models showing how firms seeking to maximize profits would pay higher than minimum wages. This model was a rebuttal to conservatives such as Robert Lucas, who mandated that flexible wages and prices would allow the economy to revert to form more easily after market upheavals. These models helped to form the foundation of the New Keynesian philosophy.
Yellen is also clearly willing to allow a measure of inflation to achieve economic growth and thus reduce unemployment, which signals that she may leave interest rates unchanged for the foreseeable future. She has indicated in more than one speech that she feels interest rates should in fact be held at zero for the time being, even if inflation rises by more than 2%. She also intends to tighten financial and banking regulations to prevent the past from repeating itself.
Yellen mirrors Bernanke’s cautious approach to dealing with the public, using meticulously researched data and a technocratic manner to minimize surprise announcements or other releases that could roil the markets. She is strongly dedicated to providing transparent communications and will have the central bank release more detailed data to the markets to help achieve this.
The Bottom Line
Time will tell how the economy fares under Yellen's guidance. Her proponents have said that they did not back her simply to put a woman in the chairman’s seat for the first time in the 100-year history of the Board, but because they are convinced she is absolutely the best person for the job. In a recent interview with CNN Money, Yellen stated, “At the highest levels of central banking, there are very few women … but I am pleased that the representation of women is increasing a lot at other levels ... I really think this is something that's going to increase over time, and it's time for that to happen." For more information on Yellen and the Federal Reserve Board, visit www.federalreserve.gov.