The job of Federal Reserve chairman is often called the America’s second most important. During the financial crisis of 2008 and early 2009, when Fed chairman Ben Bernanke scrambled to avert economic Armageddon, that might have been an understatement.
The job could be equally important in the coming years, particularly if the U.S. Congress continues to menace the economy with a double whammy of government shutdowns and threatened debt defaults.
That makes the selection of Bernanke’s successor pivotal, and Janet Yellen, 67, the economist whom U.S. President Barack Obama nominated on Wednesday to be the next chairman, seems a wise pick — at least for anyone who favours extending the policies that have refloated the economy. With Congress and the White House gridlocked on fiscal policy, the Fed is the only government institution capable of spurring economic growth. Its chairman sets the tone on interest rates and the other tools of monetary policy.
History shows it’s often hard to tell in advance how a nominee would lead the institution.
Bernanke was a mild-mannered technocrat and student of the Great Depression who was forced into the role of Fed activist when the economy cratered. Paul Volcker, who was picked by Jimmy Carter, helped undermine Carter’s re-election with a war on inflation that pushed up interest rates and unemployment. And Alan Greenspan, chosen by Ronald Reagan and so popular that people joked about putting his face on Mount Rushmore, turned out to be asleep at the switch as the housing bubble inflated.
If confirmed by the Senate, Yellen could well end up as crisis manager like her predecessor, forced to mitigate the harmful actions of Congress or to confront some other global threat. Conversely, she might have to become an inflation hawk, dealing with the consequences of years of loose monetary policy designed to jump-start the economy.
While the economic outlook is uncertain, it’s clear that Yellen has the right resume. As the current Fed vice-chairman, and someone who has served in senior positions at the Fed and the White House, she is well schooled in the economy, Washington and financial markets. She has plenty of experience with crises. And she’s a consensus-builder who does not rankle people as her erstwhile rival for the job, former Treasury secretary Larry Summers, often did.
Yellen also has an outstanding track record with forecasts and a willingness to cut against the grain. In 2007, she was one of the few policymakers who foresaw the subprime mortgage crisis. In the 1990s, she was mostly worried about inflation.
Were this a different era, Yellen likely would be approved overwhelmingly to become the first woman to lead the Fed. In these hyperpartisan times, she almost certainly will face stiff resistance from Senate Republicans who see her as too dovish on inflation or who are irate over Fed activism. Those views merit thorough exploration.
Barring some unforeseen disclosure, however, she seems a fine fit.