Ben Bernanke may soon have a new No. 2 at the Federal Reserve. President Obama is expected to nominate Janet Yellen, president of the Federal Reserve Bank of San Francisco, to serve as the central bank’s vice chairwoman, according to reports out Friday.
Yellen, a former chairwoman of the White House Council of Economic Advisers, would succeed Donald Kohn, who is retiring in June. She has been a steady supporter of Chairman Bernanke’s response to the financial crisis. In her two stints as a Fed policy maker, she has also never cast a dissenting vote on monetary policy, according to Real Time Economics, always voting in the majority over whether to raise or lower interest rates.
If confirmed by the Senate, Yellen would join the Federal Reserve Board at a time when it is grappling with how to tighten monetary policy without choking off a malleable economic recovery.
Yellen is regarded by economists as more of a dove when it comes to interest rate decisions, meaning she generally supports keeping rates low. In a February speech at the University of San Diego, she defended the Fed’s current policy of near-zero interest rates, saying:
“Such accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. I believe this is not the time to be removing monetary stimulus.”
Before first joining the Federal Reserve as a governor in 1994, Yellen spent a lengthy teaching career at the University of California at Berkeley. There, she focused her scholarly research on unemployment and income inequality alongside her husband, Nobel Prize-winning economist George Akerlof.
The Yellen pick is “good news,” says Paul Krugman. “She’s open-minded, a good counterweight to the inflation hawks who think that any day now we’ll be partying like it’s 1979 …She’ll provide exactly the kind of intellectual flexibility the Fed needs.”
Calculated Risk likes the move too: “I suggested Dr. Yellen as a possible candidate for Fed Chairman last year, so obviously I think this is a good choice. She was way ahead of most other Fed members in recognizing the housing bubble, and she is apparently well respected by other Fed members. She is also very focused on unemployment (something we need right now).”
Gregory Hess, a former Fed economist, said the selection may be “worrisome.” As he put it to Bloomberg News, “She truly does understand the costs of recessions, and I think she does understand the personal cost that this puts on people’s lives … The question is, does she take that too far in the implementation of policy?”
Her views on interest rates aside, the Atlantic’s Daniel Indiviglio says the nomination carries an “added bonus: nominating a woman would bring some gender diversity to the Fed’s leadership … There’s only one woman currently on the Board of Governors (Elizabeth Duke). I believe she would be only the second woman to serve as vice chair of the Fed.”