JANET YELLEN was not well served by the process that culminated in her nomination Wednesday to be the next chairman of the Federal Reserve. President Obama broadly implied, but did not openly state, his preference for former Treasury secretary Lawrence H. Summers, setting off a months-long struggle between pro-Summers and pro-Yellen factions. The fact that Ms. Yellen survived the competition at the insistence of liberal Democrats, who have pegged her as an easy-money “dove” more eager than Mr. Summers to fight unemployment and rein in big banks, may have had the effect of tilting perceptions of her beliefs before she’s had a chance to explain them herself.
Poorly handled though it might have been, Mr. Obama’s choice of Ms. Yellen is still a very solid one. Her credentials — as an academic economist, a Clinton White House adviser and a veteran of senior positions throughout the Fed system — are impeccable; they’re as strong as, or stronger than, those of anyone previously chosen for the position. (Of course, they are stronger than those of any woman tapped as Fed chair because Ms. Yellen is the first, another reason to hail her nomination.) Perhaps most impressive is her recent record as a forecaster, which includes spotting the devastating housing bubble before many others did.
We suspect that Ms. Yellen, if confirmed by the Senate, would fulfill neither the hopes of her liberal backers nor the fears of her conservative detractors. In part, this is because the very notion of a monetary “hawk vs. dove” divide lost some of its meaning when most mainstream economists and financial experts accepted the need for massive monetary expansion to fight the Great Recession; they are now arguing mainly over the pace at which those extraordinary measures can and should be undone. Alas for the Fed and its credibility, the central bank’s most recent efforts to inform the public about its plans went awry last month, when the Fed disappointed expectations of a slowdown in bond-buying, and did so amid much publicly aired internal discussion. One of Ms. Yellen’s first and most important tasks will be to repair that damage, if she can.
On the more substantive questions of monetary policy, her record leads us to expect that she will be driven not by “dovish” sentiment but by the data — specifically, numbers showing whether monetary expansion is still producing enough sustainable economic growth to outweigh the risks of future inflation or financial distortion. If confirmed, and if she serves a full term, Ms. Yellen would be in office until early 2018. We hope that, by that time, the economy will have reached the point at which it can be weaned from Fed assistance; indeed, that’s a strong likelihood. That means, whether Ms. Yellen is a “dove” or not, the Fed’s exit strategy from its current massive money-printing will occur on her watch. Her thinking about that unprecedented, and exceedingly delicate, task should be a central topic at her confirmation hearing.
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