What Janet Yellen will do with the nation's purse
How she will run the world's largest central bank differently than Ben Bernanke and what has shaped her views.
(Page 6 of 6)
And if that doesn't work, there is always humor, which Yellen has also been known to apply from time to time. Daly recalls being at one San Francisco Fed event that featured life-size cardboard images of bank leaders, including Yellen and herself, who are similar in size, which is to say not very tall. "She thought she was taller than me," but the props seemed to say otherwise. Daly says it prompted a laughter-filled episode in which Yellen insisted that they stand back to back, sans shoes, while other economists helped judge who really had the edge.Skip to next paragraph
Subscribe Today to the Monitor
"It was a glorious day for me," Daly says, adding that Yellen took the certified – and to her, surprising – loss in stride.
• • •
Yellen's next act will undoubtedly be her most important. Under Bernanke, the Fed quelled a financial panic through various emergency support programs undertaken on its own or in league with the US Treasury. Now the job is less urgent. The word "crisis" isn't in daily headlines. But it's far from an inconsequential moment.
For one thing, she will have to maintain a stable financial system that won't be prone to the kind of financial crisis that struck in 2008. This will mean careful oversight of financial firms, without the kind of overregulation that can stifle the flow of credit.
Yellen will also have to keep the economic recovery going while beginning the long march toward "normalizing" the Fed's monetary policies. This will come in two phases – first, in the gradual withdrawal from a program of big monthly bond purchases designed to keep long-term interest rates low; and, second, in beginning to raise the Fed's short-term interest rate from its post-2008 level of essentially zero percent.
That first step began with a Fed decision in December. Raising interest rates appears further off – perhaps some time in 2015 – given that inflation remains low and economists see plenty of slack in the job market. Some 11.7 million Americans are counted by the Labor Department as either unemployed or as having dropped out of the labor force because of discouragement.
All these recalibrations involve high-stakes decisions. Anything perceived as tightening policy could unnerve global stock and bond markets. But keeping the money spigot gushing for too long carries its own dangers, such as penalizing savers with low interest rates and swelling the Fed's bond portfolio to an unwieldy size.
RECOMMENDED: Janet Yellen: Five economic policy views
For now, Yellen stands poised to persist with monetary stimulus. That outlook stems from her reading of the current economy – the still-high rate of unemployment and inflation that's below the Fed's 2 percent target. But it's also a view that connects back to her Brooklyn roots in the wake of a previous financial shock.
"My mother and father were pretty traumatized by the [1930s] Depression," Yellen told a UC Berkeley alumni magazine in 2012. "I remember thinking, 'this is something our country should never live through again.' "
Whichever direction she ends up taking the Fed, she probably won't let her newfound power fill her with visions of grandeur. Because if she does, somewhere deep down inside, there will probably be Yellen the cub reporter telling Yellen the central banker: "Come now ... you're letting this Fed job go to your head!"