Janet Yellen: How nominee would shape Federal Reserve policy

Janet Yellen, nominated by President Obama to assume the important No. 2 role at the Federal Reserve, said Thursday that the economy is recovering from recession, "but the pace is not sufficient to bring down unemployment very rapidly."

She spoke before the Senate Banking Committee, which must consider whether to confirm her nomination to be vice chairman of the Fed's board of governors in Washington. Her comment on the economy fit with her reputation as more worried now about boosting growth than about the risk that Fed policies will create inflation.

Ms. Yellen, currently president of the Federal Reserve Bank of San Francisco, would occupy a powerful position close to Chairman Fed Chairman Ben Bernanke. The outgoing vice chairman, Donald Kohn, has done much to shape the Fed's overall stance on monetary policy in recent years.

So who is Yellen?

She's an economist, and she's had lots of experience on both sides of Fed operations: at its Washington headquarters as a member of the board of governors, and more recently as head of one of 12 regional Fed banks, which keep tabs on local economies around the nation.

Among the Fed's regional bank presidents, some are viewed as "hawks" and some as "doves" on inflation. Yellen falls into the dovish camp.

These are relative terms. Hawks don't lack for worry about the nation's high unemployment rate, or the risk of deflation if monetary policy fails to encourage growth following a deep recession. And doves aren't immune from concerns about inflation. But the two camps do differ. The hawks will be sooner to act to tighten monetary policy during an economic expansion.

"Job creation must be a high priority of monetary policy," Yellen said in her opening statement before the Senate committee Thursday. "But we must also avoid any threats to price stability. That means that, when the appropriate time comes, we must withdraw the extraordinary monetary accommodation now in place in a careful and deliberate fashion," she said.

At a time when the Fed has drawn its share of public criticism – including questions in some quarters about whether the Fed should exist at all – Yellen also used her appearance to defend the notion that the nation needs a central bank free of political interference.

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