Janet Yellen will be Barack Obama’s nominee to chair the Federal Reserve. It’s the right choice and in many ways the inevitable choice, but throughout the hubub over Larry Summers, you may have actually missed the key facts about her:
1. She’ll be the best-qualified Fed chair ever: Ben Bernanke had a stint as Council of Economic Advisors chairman and served a couple of years on the Fed Board of Governors before taking over. That at the time made him one of the most qualified and well-credentialed Fed chairs ever. But Yellen blows him away. She did the CEA gig too. And she was a governor for three years. But she was also president of the San Francisco Fed for five and a half years and has been vice chair for the past three years. It’s a level of experience that’s unprecedented in the history of the system.
2. She’ll be the most important woman in economic policy in American history: It’s probably no coincidence that it took someone so super-duper-duper-qualified to break this particular glass ceiling. No woman has ever chaired the Federal Reserve. Nor has any woman ever chaired any of the other major central banks. We’ve never had a woman run the Treasury Department or the National Economic Council.
3. She’s a “dove” on inflation in the best possible way: Yellen’s allies often want to debunk the idea that she’s a “dove” on inflation, pointing out that at times she’s favored tighter money when appropriate. But I think she ought to own it. Right now monetary policy debates are divided into two factions—the people who think tighter monetary policy is a good idea when inflation is problematic, and the people who think tighter monetary policy is a good idea even if inflation isn’t problematic. Let the people on the latter team be the hawks and let the Yellens of the world be the doves. She’s for monetary policy that fits the actual circumstances.
4. She’s a believer in the power of fiscal stimulus: There’ve been a lot of interesting debates about whether monetary policy can or does offset the growth impact of fiscal stimulus or austerity when short-term interest rates are at zero. Yellen has made fairly extensive presentations on the theme of austerity holding back growth during the current recovery, so we see where she stands.
5. She’s only the second-most-accomplished economist in her marriage: Yellen has solid academic credentials (Ph.D. from Yale, professorships at Harvard and Berkeley), but has spent a lot of her career in government and has made her mark more as a policymaker than as a scholar. Her husband, by contrast, is Nobel Prize-winning economist George Akerlof—an academic giant whose ideas are discussed in policy circles but who’s never really been a policymaker.
6. Nobody knows very much about her views on bank regulation: During the Summers contretemps, there was a lot of interest in the Fed’s role as a bank regulator. Yellen is a bit of a blank slate in this regard, and doesn’t have many well-known views on the subject. As president of the San Francisco Fed, she was alert to the existence of serious problems in mortgage lending, and seemed to urge the board in Washington to do something about it but didn’t try to find any authority to act unilaterally.