It can’t hurt know a little about the new chair of the Federal Reserve since her actions can have a significant impact on the economy and its direction.

It can’t hurt know a little about the new chair of the Federal Reserve since her actions can have a significant impact on the economy and its direction.

A native of Brooklyn, New York there is no question that Janet Yellen is bright. She was the valedictorian in her public high school class and graduated summa cum laude from Brown University with a degree in economics in 1967. She earned her Ph.D. from Yale where her notes, generally referred to as the “Yellen Notes” on campus, became an “unofficial” economics textbook for years after her graduation.

Dr. Yellen is married to Nobel Prize winning economist George Akerlof with whom she shares an avocation for collecting stamps.

She has spent over 25 years teaching economics at the London School of Economics and University of California, Berkeley where her students report she is fair and firm. She has written on wide variety of macro-economic issues while specializing in the causes, mechanisms and implications of unemployment. Outside the classroom she is seen as reserved and thoughtful.

She has served as vice chair of the Federal Reserve since 2010. Previously, she was on the Fed Board of Governors from 1994 to 1997 and then president of the Federal Reserve Bank of San Francisco. During this period she developed a reputation as an astute forecaster. Dr. Yellen’s views on issues from the damage caused by the housing market meltdown to the steps needed to work out of the recession more accurately predicted reality than many of her peers.
The Wall Street Journal has called her the “most accurate forecaster at the Fed.”

Her supporters say that one of her key assets is that she is a consensus builder which was demonstrated by her ability to build agreement among Federal Reserve board members and regional presidents on interest rates.

On what to expect in the near future, most observers expect a smooth transition from current Fed chair Ben Bernanke. The Washington Post reported, “She is the least likely of all the chairperson candidates to rock the boat”. She is seen as “dovish” as Dr. Bernanke and economists expect that she will stay the current course on interest and mortgage rates.

It is anticipated that Dr. Yellen will improve Fed communication which, at times, has been criticized as being unclear and infrequent. This is likely to start with the thinking and timing on tapering the current economic stimulus program.

Since her academic research has centered on the effects of unemployment, the Wall Street Journal predicts, in the short term, that it is likely she will advocate for the continuation the economic stimulus. In the past, she has argued that in times of high unemployment there is little risk of inflation.

Dr. Yellen has expressed concern on the inflation issue, however. She played a central role in setting the Federal Reserve target at two percent. Her stated view is that letting the inflation rate fall too low is as risky as letting it go too high. That view is now embedded in the Fed’s policy.

Two anticipated “jolts” to the economy which are likely to occur under her watch will be the actual start stimulus tapering and any rise in interest rates. With disruptions caused by the government shutdown any serious discussion of tapering now is not expected before mid-2014. On interest rates, economists do not see any significant debate on this issue before 2015 and even as late as 2017.

Richard J. Kinney
Dick Kinney has over 30 years corporate management experience. He has served as an advisor to business and state government on management and public policy issues.


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