Economists React: Yellen ‘What We Really Need in a Fed Chair’

Economists and others weigh in on the coming nomination of Janet Yellen to be chairwoman of the Federal Reserve. Check back for updates.

–I think the best words I can think of to describe Janet is as “a real mensch”, that is, she is a person with genuine integrity and humanity. That is what we really need in a Fed chair, for every decision she makes, one way or another, affects real people, and there will always be some who will feel disappointed in the policy chosen. She is the kind of genuine and persuasive person who will be able to make good policies happen. –Robert Shiller, Yale University

–The new chair’s most important challenge, in my view, is to lead the Fed toward a more predictable, less interventionist, more rules-based monetary policy of the kind that worked well when tried, as in the 1980s, 1990s and until recently. The sooner the Fed gets back to such a policy, the sooner the U.S. economy will begin performing well as it did in those earlier decades, which have been called the Great Moderation or the Long Boom… So, although Janet Yellen has been rationalizing the recent departure from rules-based policy, she wants to get back to rules-based policy. In fact, she has been the most vocal advocate of such a return of any Board member including the current Chair. The sorely needed “great unwinding” will of course be difficult. The question is when and whether she will be able to pull it off. I wish her the very best. –John Taylor, Stanford University

–Yellen will bring continuity with respect to the policies that the FOMC has adopted under Bernanke. The idea of Yellen as an agent of continuity will come as a surprise to many in the market and, likely, to more than a few on the FOMC. She is clearly perceived as being more dovish than the Chairman—by a wide margin. Even some members of the Committee do not see her as an agent of continuity. That is a tension and an immediate challenge she will have to deal with. –Larry Meyer, Macroeconomic Advisers

–President Obama has made a great decision in choosing Janet Yellen to chair the Federal Reserve. The image above, by the way, is one of the illustrations in the next edition of my favorite textbook (which is now in production). When supervising the artist, I had to guess who the next Fed chair would be. As you can see, I guessed right.. –Greg Mankiw, Harvard University

–As Federal Reserve Chairman, we would expect Janet Yellen to approach the daunting task of winding down an era of ultra-loose monetary policies in a similar fashion as her predecessor—with caution… AYellen-run Fed would likely place significant weight on the 2nd part of the Fed’s dual mandate, full employment, even at the cost of a temporary rise in inflation. We maintain our belief that rate hikes are unlikely to come before 2015. –Russ Koesterich, BlackRock Investment Institute

–One very important thing she’s brought to the table is the absence of rose-colored glasses. Most macroeconomists have consistently proclaimed the economy on the mend too soon—they saw “green shoots” where there were none. Particularly if you look at Yellen’s “optimal control” analysis—running simulations of different economic paths to determine the one that most effectively reduces unemployment without generating too much inflation—you’ll see her going beyond the analytics of established, though not always reliable, “rules” regarding how the Fed should set rates. I have faith that should she become chairwomen, Yellen will be less likely than most to let up on monetary stimulus too soon. –Jared Bernstein, Center on Budget and Policy Priorities

–The outlook for monetary policy will be little changed when Janet Yellen replaces Ben Bernanke as Fed Chair at the end of January. At this stage, Yellen is unquestionably the best candidate. But there is a slightly bigger risk that under her stewardship, the Fed will fail to tighten monetary policy in time once the recovery gathers momentum, eventually triggering an unwanted surge in inflation… Yellen will still hold just one of the 12 policy votes. In that regard, the balance of the FOMC is likely to be more affected by the annual voting rotation of the regional Fed Presidents and the filling of the vacant positions on the Board of Governors, including who will replace her as Vice Chair. –Paul Dales, Capital Economics

–[Yellen] will serve as a force for continuity will serve as a force for continuity in Fed policies. Indeed, many of the policy innovations over recent years, such as the economic and interest rates forecasts and the statement of longer-run goals and policy strategy, were advocated by Yellen. She was the least likely of all the Chairperson candidates to rock the boat. The question from a monetary policy perspective is the degree of her reputed dovishness. Both her and Bernanke have been staunch supporters of very aggressive monetary stimulus in recent years, even as many of those who voted with the majority were apparently less enthusiastic about those policy moves. But whereas Bernanke had dovishness thrust upon him in the aftermath of the Great Recession, Yellen, while perhaps not born a dove, at least had long-held views biasing her toward activist policy to counteract the weakness in the labor market… Does this imply that we should worry about an inflation problem with Yellen as Chair? We think not. –Michael Feroli, J.P. Morgan Chase

–Reports of Janet Yellen’s forthcoming nomination will be greeted well by market agents. It should be. They will assume a continuation of the Bernanke policy. They will also assume gradualism when it comes to Fed tapering which is now likely to be delayed because of the budget, debt-limit fight’s damage to the US economy. The US economic recovery is losing steam daily. –David R. Kotok, Cumberland Advisors

–Yellen is deeply committed to both sides of the dual mandate: in the 1990s she pressed Alan Greenspan to adopt a formal inflation target – not the act of a serial dove. Her speeches show a practical policymaker’s view of the inflation process, with a focus on wage inflation and unit labor costs along with inflation expectations. Today wage inflation and unit labor costs are very subdued and inflation expectations are within the normal channel, providing the scope for accommodative policy. –Krishna Guha, ISI

–[Yellen] knows that the economy needs a boost. It certainly does. I cannot find a measure of real activity (such as employment or production) that is anywhere close to its potential. This is not the time to worry about inflation. I would be an inflation hawk if I thought that we were heading above two or three percent, but we’re not. That said, I’m not jumping for joy, simply because the choice of the Fed chair doesn’t make much difference to the overall economy. –Bill Conerly, Conerly Consulting

–Yellen is quite simply more qualified for the job than any of her predecessors. She’s an imaginative and technically adept economist possessed of a brilliant and precise mind. As a researcher, she has made fundamental contributions to our understanding of unemployment and the importance of smoothing out the ups and downs of the economy… Tonight, I feel reassured that my daughter’s economic future is in good hands. I also plan to tell her that she, too, can grow up to become the most powerful economist in the world. It’s a potent stimulus. –Justin Wolfers, University of Michigan