By most measures, Janet L. Yellen's leadership of the Federal Reserve has been a great success. Unemployment is far lower now than it was when she took the helm of the central bank in February 2014; the stock market has hit record highs; and inflation is low, but not anemically so. A clear majority of economists surveyed by the Wall Street Journal give her an “A” grade, a very high mark for any leader in Washington.
Yellen, the first woman to lead America's central bank and one of the most powerful women in the world, is closing out her tenure with a track record that arguably puts her among the best leaders the Fed has ever had. U.S. unemployment is 4.1 percent. If it stays at that level, Yellen will wrap up her time at the Fed with the lowest final unemployment rate of any Fed chair since William Martin in 1970. If unemployment drops below 3.9 percent by February (when she is scheduled to depart), she will conclude with the lowest jobless rate of any Fed chair since Thomas McCabe finished his stint in 1951 with unemployment at 3.4 percent.
There are many economists who argue that 4.1 percent unemployment today is different than in the past. Some Americans, especially men, have given up looking for work, partly because of the opioid crisis and other signs of despair. But it's telling that under Yellen, the U.S. unemployment rate has fallen the most of any Fed chair term in modern history if you compare where it was at the start of her tenure vs. the end. It has declined 2.6 percentage points. No other chair even comes close in the post-World War II era. Alan Greenspan, No. 2 on that list, oversaw a 1.3 percentage-point drop, although he was Fed chair for far longer and oversaw much more of a roller-coaster ride during which unemployment spiked to nearly 8 percent in the early 1990s.
Yellen has noted that while the Fed's mandate is to keep unemployment low and prices (inflation) stable, the jobless rate isn't the only metric people should be looking at to assess the health of the job market. She created a dashboard with many different factors to assess — job openings, labor force participation and people stuck in part-time jobs, for example. All of those metrics have also improved under her tenure. Only one of the 12 indicators (labor force participation) remains in the red.
“She negotiated America from the turbulent waters of a finance crisis to an exit from that crisis. She made it look pretty seamless,” said economist Diane Swonk of DS Economics, who has known Yellen since the early 1990s. “In a different world, she would have been reappointed.”
Yellen is the first Fed chair not to be reappointed after serving a first full term. President Trump considered her and four other candidates for the job. In the end, Trump chose Fed governor Jerome “Jay” Powell, the candidate who was widely viewed as the most like Yellen (with some on Wall Street dubbing him “Janet-lite").
“If it was just about the economy, it would be a slam dunk to reappoint her,” said economist Joseph Gagnon of the Peterson Institute of International Economics when Trump was deliberating on who to select for the job.
On Wall Street, many are not looking forward to Yellen's exit. While Powell will likely be a bit softer on regulating banks, there's no doubt Yellen has been stellar for the markets. She had an early bobble at her first news conference in March 2014 that caused markets to sell off when traders read her statement as indicating that the Fed would start tightening soon. But she learned her lesson and became exceedingly cautious in her public remarks — and she gave a lot of hints for any future actions the Fed might take so that markets could be prepared.
Macrotrends, a market and economic data website, calculated the S&P 500 cumulative (inflation-adjusted) returns under the past four Fed chairs. Yellen has the highest return by this point into her tenure (47 months). In other words, no other recent Fed chair has seen the market climb as far as fast as it did under Yellen. Ben Bernanke, her immediate predecessor, struggled the most, although he was chair during the Great Recession.
Sluggish inflation and lackluster wage growth have been the main disappointments of Yellen's tenure. As unemployment fell, she kept predicting wages would begin to pick up. So far, that hasn't happened. But inflation has come back to the point that no one is worried about deflation (when prices fall and the economy tends to stagnate) in the United States anymore. It's just that the Fed's favorite inflation gauge (PCE or Personal Consumption Expenditures) isn't back to 2 percent yet.
But for most Americans, inflation isn't a huge concern. Many complain that prices are rising fast enough as is. The Consumer Price Index shows inflation back to about 2 percent a year, a level far preferred to the great spikes in the 1970s.
Some ding Yellen for not being as good at the politics of her role as some of her predecessors, notably Alan Greenspan. Yellen was attacked on the right for greatly expanding the role of the Fed in the economy, especially with the purchase of so many bonds and mortgage-related assets. The Fed's balance sheet ballooned from $900 billion to $4.5 trillion.
“As Fed chair, you have to be not only a good economist, but also a good politician and diplomat,” said economist Sung Sohn, a professor at California State University. “She fell a bit short of being a politician and diplomat, especially working with Congress.”
And on the left, Yellen has been criticized as not doing enough to combat inequality. As the stock market hit record after record, the wealthy prospered while the middle and working classes saw little wage growth. Yellen herself was born in Brooklyn and earned a PhD from Yale before rising through the ranks of academia and becoming president of the Federal Reserve Bank of San Francisco in 2004. She was appointed to the main Fed board in Washington in 2010.
Still, Sohn said, Yellen deserves “a very high mark” overall on her leadership of the Fed.
Even her political adversaries on Capitol Hill acknowledge that she was always well prepared and deeply knowledgeable. In an increasingly hostile political climate of insults and few facts, Yellen stuck to the numbers as much as possible.
House Financial Services Committee Chairman Jeb Hensarling (R-Tex.), who often sparred with Yellen, was quick to issue a statement when she announced she would step down from the Fed board after her tenure as chair ends in early February, saying he had “great respect for Chair Yellen” and that she “has always been professional.”
Even Trump, who during the presidential campaign said Yellen “should be ashamed of herself” for the Fed's decision to keep interest rates low, did a U-turn in recent months and started praising her as an “excellent” leader.
Historians and economists will likely debate whether she was unfairly pushed aside because of her gender. But few can argue that she is exiting on a high.
“She deserves to go out on a standing ovation,” Swonk said.