We will miss Dr Yellen—more than perhaps most people currently realiseby George Magnus / December 4, 2017 / Leave a comment
Janet Yellen, who took up her position as Chair of the Federal Reserve in February 2014, gave what was probably her last official testimony in this capacity to Congress last week. She will chair just two more meetings of the Federal Open Market Committee. We will miss her, more than perhaps most people think currently. For, as I have pointed out here before, the crisis she would normally have managed will now fall to her successor, Jay Powell. He may turn out to be a competent central banker, but he’s not an economist.
Janet Yellen is a top economist, having taught at both Harvard and the LSE. She has a long list of highly-cited publications. She has been a most capable and respected head of the Fed, one of the most important institutions in the global economic system. As the first woman to hold that position, she was a trail-blazer to boot. She tolerated constructive dissent among colleagues, and had a great way with words when explaining complex economic issues. Frankly, I can’t imagine any economic adversity in which it wouldn’t be better for Dr Yellen to still be running the show.
Slow strides towards normalisation
On her watch, QE, or the regular purchase of assets by the central bank, was gradually wound down during her first 10 months, without incident or mishap.
She then prepared US and global markets for a gradual shift in, or normalisation of monetary policy—the first so-called ‘tightening cycle’ in a decade. The first small rise in policy rates happened in December 2015, and when she referred to ‘gradual’, she meant it: the second didn’t happen until a year later in December 2016. Two more followed in March and June this year, and another is expected next week.
All along, Yellen has communicated her and the Fed’s thinking clearly and effectively. As the Chair of the Fed, which has a dual mandate of 2 per cent inflation and the maximum possible level of employment, she persistently emphasised the latter. The proof of the pudding is the fall in measured unemployment from 7 per cent when she took office to the current rate of around 4 per cent, which may well not be the floor yet.
She kept at bay those who wanted…