Janet Yellen in her own words: An exclusive interview


Janet Yellen is expected to be nominated to lead the Federal Reserve on Wednesday. Here's what she had to say last November. (Reuters/Kevin Lamarque)

Last November, I interviewed Federal Reserve vice chairwoman Janet Yellen for an article about the Fed that appeared in Money Magazine (go read it!). Magazine space constraints being what they are, most of Yellen's comments ended up on the cutting-room floor. Here, for the first time, are outtakes of that interview with Yellen, whom officials say will be nominated Wednesday to be the next chairman of the U.S. Federal Reserve System.

On whether investors should fear the Fed's aggressive interventionism:

"These are scary times if you are an investor. We’ve been through the worst financial crisis since the Great Depression. The economy is recovering but problems in Europe  … have not been thoroughly solved, and there is concern about the so-called fiscal cliff. It’s those events that are the real source of uncertainty for investors. What the Fed is trying to do is to make the environment more predictable, more favorable and less scary. We may be using tools that are unfamiliar, but we’re trying to be very clear about what our objectives are and how the use of our tools relates to those objectives. So if I were an investor, I would feel better that the Federal Reserve is committed to goals that have been given to us by Congress, and are ones that the American people view as desirable and in the best interest of all Americans --- price stability and full employment.”

On using monetary policy to try to get the economy revving:

“There are a lot of things holding back the economy. If one were making a list of the top five or ten things holding back the economy, you wouldn’t say money being too tight, and interest rates being too high were on it. But interest rates and credit conditions are what we can affect. They are not the problem, but they can be part of the solution.”

On why a stronger economy would help everybody:

“If people think broadly about their own financial well-being both in the short term and over the medium run, they likely will think that having the economy get back on track, recover, and grow more robustly, is a positive … stock returns, for example, are going to depend on the health of the economy…. Having the ability to get a job is extremely important to households. If you are a retiree and your kids can’t get jobs, and they decide they’re going to come home with you and live with you, that’s an important negative.  . . .If we’re successful in what we want to accomplish, for the economy, for the job market, asset prices more generally --- housing, the stock market -- our policy is going to be broadly favorable."

On whether Fed policies are creating new dangers:

“I don’t think it's causing a danger. ... Is our a policy a magic wand? No, it’s not. But is it working? Yes, I think it is working.”

On inflation:
"There just isn’t inflationary pressure in the economy now. We don’t have inflationary pressure. We don’t have enough spending. The economy is weak. When the economy picks up, as these headwinds diminish and spending revives on its own and not just as part of our policy, we will have to diminish the amount of accommodation we provide. We will have to tighten policy. That’s always what the Fed has to do when the economy turns from depressed to booming."

On the Fed's exit strategy from unconventional stimulus policy:

“We’ve spent a lot of time thinking about whether we have the means to withdraw monetary policy accommodation, and I think the answer is yes. We will have to do so in a way that’s novel, that we haven’t tried in the past -- by raising interest we pay to banks on their reserves, thus raising short-term interest rates generally."

On the market impact of the Fed's exit:

"When policy turns from more accommodative to more restrictive, that’s going to be a market-sensitive event. It always is.”

On Fed transparency:

“The level of transparency and communication has increased by an order of magnitude (since the mid-1990s). We’re trying to be as clear as we can about what we expect the future path of interest rates to be."

"An important development is that we finally adopted, as a committee, a numerical target for inflation… I hope that made people more comfortable that we will maintain our commitment to price stability.”

“I think communication is a tool in and of itself. It’s not only current purchases of assets, or the current level of the Fed funds rate that matter, but also market expectations of the paths of those things over time. A lot of what we’ve done --- a lot of what unconventional policy does -- is communicate expectations about future policy in a way that affects financial conditions now.”

Jim Tankersley is the editor of Storyline.
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Neil Irwin | October 9, 2013