Economist Janet Yellen is poised to succeed Ben Bernanke as chair of the U.S. Federal Reserve when his term expires Jan. 31. If the Senate confirms her nomination, as expected, she will become the first woman to run the planet’s largest national economy.
This 67-year-old academic worked her way up at the Fed. She has served as a supportive No. 2 to Bernanke since 2010.
If she is confirmed, bankers and traders will hang on her every word, as they have on Bernanke’s and previous Fed chiefs. Other central banks will look to Yellen for direction. Her ascension will mean that women — Yellen, German Chancellor Angela Merkel and International Monetary Fund boss Christine Lagarde — hold three of the global economy’s most critical posts. That’s quite a milestone.
We’re hopeful. Yellen has the background and experience to be a very effective Fed chair. The challenge she faces will demand a very effective Fed chair.
Bernanke has been pouring on monetary stimulus for years. He has expanded the Fed’s balance sheet from $859 billion in mid-2007 to $3.7 trillion. His successor will be left to deal with the consequences.
Many commentators have tried to peg Yellen: She’s a Democrat. She’s a Keynesian. She’s a Bernanke acolyte. She cares more about reducing unemployment than fighting inflation. She may be too soft to crack down on inflation before it gets going.
Let’s wait and see. Often the circumstances make the chairman. The nation was fortunate to have Bernanke — a leading scholar on the Depression — in place when the crisis hit. Everyone can speculate based on her history, but no one really knows how a Chairwoman Yellen will play whatever hand the economy deals her.
We do expect that Yellen will embrace one of the current chairman’s most positive legacies.
Bernanke understands the power of jawboning. His utterances move markets. Under his stewardship, the Fed has tried to be more open and strategic about the messages it sends. It hasn’t always succeeded: This year’s flip-flop over tapering QE3 is an example of botched communication.
But the Fed has come a long way from the era of Alan Greenspan, the Bernanke predecessor remembered for tossing off the ill-defined but alarming phrase, “irrational exuberance,” among others. Throughout much of its existence, the Fed has had a policy of never explaining itself. The result has been uncertainty.
Bernanke and Yellen recognize that uncertainty hurts the economy. In a speech earlier this year, Yellen spoke approvingly of the “revolution” in communication at the Fed’s policymaking open-market committee. “The revolution in the FOMC’s communication, however, isn’t about technology or speed,” she said. “It’s a revolution in our understanding of how communication can influence the effectiveness of monetary policy.”
Tell us more. We will be listening.