Janet Yellen has enjoyed a successful stint as the most powerful woman in America. Chairing the Federal Reserve, she has wielded more influence over the U.S. economy and global markets than any other single figure, calmly and cautiously steering the country towards relatively low unemployment and solid economic growth, while resisting calls for dramatic interest rate hikes that might have destabilized that progress.
Nevertheless, the White House announced on Thursday that Yellen’s time is officially up. Though presidents typically reappoint incumbent Fed chairs to a second term, the Trump administration is breaking with tradition, and will nominate Jerome Powell, a current Fed Board Governor, to fill the leadership role once Yellen’s term ends in February.
And so America’s most powerful woman will lose her job to a far less qualified man.
Trump apparently came close to reappointing Yellen, on the logic that the stock market was roaring under her watch and it was best not to mess with a good thing. But then Treasury Secretary Steve Mnuchin intervened, arguing that Trump should “put his own personal stamp on the Fed,” as Bloomberg reported. Powell’s virtues are threefold. He is a Republican, which makes Republicans happy. He will likely continue Yellen’s approach to monetary policy, which makes everybody but hard-money ideologues happy. And he’s less in favor of strict regulation of the financial industry than Yellen, which makes banks happy. There were certainly much worse men who could have been picked for the job.
But that doesn’t mean Powell is an ideal candidate either.
A lawyer by training, Powell would be the first Fed chair without an economics Ph.D. since Alan Greenspan took over the job in 1987. This is not necessarily a disqualifying flaw — the last non-Ph.D. to hold the position, Paul Volcker, is still revered as the man who curbed inflation during the 1980s and in many ways ushered in the modern era of U.S. monetary policy (for better or worse) . Powell’s background in finance—he worked in investment banking, moved to George H.W. Bush’s Treasury Department, where he dealt with a crisis at Salomon Brothers, and made a fortune working in private equity—could even be an asset. Some have suggested that scholarly former Fed Chair Ben Bernanke’s lack of experience with banking may have blinded him to warning signs about the coming financial crisis. Powell clearly knows finance.
But until recently, Powell really didn’t know much about economics. As the Wall Street Journal notes, Powell “landed at the Fed almost by accident.” The administration was desperate to find a sane Republican to appoint to the Fed board, because GOP Senators were blocking its other nominees. Powell came to their attention during the debt-ceiling crisis of 2011, when he showed up on Capitol Hill as an emissary of the Bipartisan Policy Center and encouraged members of his party not to blow up the economy. That was sane enough, and Powell joined the central bank in 2012.
“When he showed up at the Fed, he basically did not know much about macroeconomics or monetary policy,” Seth Carpenter, the chief U.S. economist at UBS and a Fed veteran, told the Washington Post. “He made a conscious decision to spend a lot of time with staff and colleagues to learn as deeply and completely as possible.”
As possible are the key words here. Ultimately, Powell will be at the mercy of the Fed’s staff in much of his decision making. And while his instincts may align with Yellen’s—he has never dissented from her position on a Fed board vote—it’s hard to say what he will do if a crisis erupts or he’s forced to make a hard decision as chair. He may well be a valuable utility player on the Fed board; aside from being a consistent Yellen ally, he’s mostly overseen boring-but-important matters such as the financial payments system. But it’s not clear he’s the guy you’d want guiding the ship.
Compare that to Yellen’s background. A successful economist, she served on the Fed board during the Clinton years, before leaving to chair the administration’s Council of Economic Advisers. As President of the Federal Reserve Bank of San Francisco, she turned out to be the board’s resident Cassandra, warning her colleagues in early 2008 that they weren’t doing enough to head off a potential credit crisis or severe recession. (She turned out to be the most accurate economic forecaster on the Fed board, and even her own worst fears weren’t quite pessimistic enough.) Later,she served as vice chair under Bernanke, before taking her own, able turn as the woman in charge. There are certainly things one can criticize about her tenure—the Fed has consistently failed to hit its inflation targets, for one, suggesting she could have afforded to be even more dovish. But her results could have been far, far worse.
Yellen will be remembered as an effectual Fed chair not just because she had a sterling resume, but because her judgment consistently turned out to be sound. That’s no less true today. Powell manages to check the right boxes politically, but the jury is out on whether he’ll be up for the job.
To be clear, I’m not suggesting that gender played a role in Trump’s decision. I strongly doubt it did, given how genuinely interested he seemed in reappointing Yellen. But in a world where we constantly question whether women in powerful positions have truly earned their way to the top, I think it’s worth noting that Powell’s chief qualifications is agreeing with the woman he’s set to replace.
Even though she will no longer be chair, Yellen has the right to stick around on the Fed’s Board of Governors until her 14-year term ends in 2024. Personally, I hope she does. It may be a bit tough to take a back seat to a man with fewer qualifications. But someone needs to train her replacement, and he already follows her lead.
