“She has proven through her extensive and impressive record in public service and academia that she is most qualified to be the next chair,” Sen. Tim Johnson (D-S.D.) said Monday. “Americans should feel reassured that we will have her at the helm of the Fed as our nation continues to recover from the Great Recession.”
Yellen will be in charge while the Fed is at a crossroads. Over the past five years, the central bank has pumped trillions of dollars into the economy through bond purchases to lower borrowing costs for consumers and businesses and to boost the recovery. Now, it is starting to scale back that support — a delicate task that risks jeopardizing the economy’s progress. A wrong move could also send Wall Street into panic mode.
“There is no question there could be unintended consequences,” New York Federal Reserve Bank President William Dudley said at a conference in Philadelphia on Saturday, describing the challenge that Yellen and other central bank officials will face in coming years.
Yellen will inherit an economy that is no longer in free fall but is far from fully healed. Unemployment remains stubbornly high while inflation is perplexingly low, and government spending cuts have undermined the recovery’s momentum. Stock markets have soared to record highs, but economic growth has been so anemic that many Americans believe the nation is still in recession.
“The stock market has become addicted to the Fed’s easy-money policies,” said Sen. Charles E. Grassley (R-Iowa), who voted against Yellen’s nomination. “While the stock market has become addicted to easy money, the benefit to Main Street has been questionable at best.”
Before the financial crisis, Yellen proved to be a particularly prescient voice inside the Fed. She served as president of the Federal Reserve Bank of San Francisco during the housing boom and sounded early warnings that problems in the subprime sector could spill over into the broader economy. She was appointed Fed vice chairman in 2010 and has been a staunch advocate of the its easy-money policies, often invoking the toll that high unemployment has taken on U.S. households.
Like Fed Chairman Ben S. Bernanke, Yellen has pushed for more communication and transparency at the historically secretive institution. She led the bank’s efforts to establish an explicit 2 percent target for inflation and develop guidelines for when the Fed would consider raising interest rates from near zero.
Yellen’s academic home is at the University of California at Berkeley, where she studied the roots of unemployment and has taught on and off since 1980. She received her doctorate in economics from Yale University under the mentorship of Nobel laureate James Tobin.
Yellen also has a long history at the central bank. She worked there as an international economist in the 1970s and met her husband, famed economist George Akerlof, in the Fed’s cafeteria. She returned in the 1990s to serve on the Fed’s Board of Governors before joining the Clinton administration as head of the Council of Economic Advisers.
But Yellen is not a political animal by nature, those close to her say. Until her Senate confirmation hearing, she had not testified on Capitol Hil in the three years that she was Fed vice chairman.
Forging connections with lawmakers has become an increasingly important part of the Fed chairman’s job, particularly as the central bank continues to deploy controversial new tools and expands its oversight of financial institutions. In a recent speech, Bernanke expressed surprise over how much time he spent meeting with legislators — and how critical those relationships proved to be.
The Fed will probably see several other significant personnel changes this year. The White House has considered nominating Stanely Fischer, former head of the Bank of Israel, as vice chairman, according to a source. In addition, Lael Brainard, a former top official at the Treasury Department, might be appointed to the Fed’s Board of Governors. At least two other seats at the Fed are open.