Janet Yellen, a Backer of Pushing the Fed’s Policy Boundaries

10/9/13
 
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from The Wall Street Journal,
10/9/13:

Nominee for Central-Bank Chief Has Easy-Money Leanings.

These days Janet Yellen is focused on helping things grow, such as consumer spending, investment and most of all jobs—all reasons President Barack Obama nominated the methodical and meticulous economist to run the Fed.

As the Fed’s vice chairwoman since 2010, Ms. Yellen, 67 years old, has been at the forefront of pushing the Fed to use new and risky policies to nurse the crisis-damaged economy back to health. These policies include buying trillions of dollars of bonds to hold down long-term rates in hopes of lowering unemployment, a program known as quantitative easing, or QE.

While the easy-money leaning aligns her with current Fed Chairman Ben Bernanke, it puts her at odds with a minority of Fed policy makers. They say the extraordinary policies have done little to help the economy and risk triggering higher inflation and financial instability.

Her willingness to push boundaries to goose a listless economy reflects her intellectual heritage as a protégé of the late Nobel laureate James Tobin , a Yale University economist who advised presidents Kennedy and Johnson. Mr. Tobin’s work built upon the ideas of Depression-era economist John Maynard Keynes and supported government action to combat problems such as high unemployment and poverty.

Ms. Yellen earned her Ph.D. in economics at Yale in 1971 with Mr. Tobin as her thesis adviser. As an academic, she specialized in the costs and causes of unemployment. She embraced her mentor’s conviction that government and especially central banks can help reduce it.

Ms. Yellen’s drive to use Fed policy to lower unemployment has caused some critics to question her commitment to keeping inflation under control.

Her supporters counter that Ms. Yellen has often demonstrated her determination to prevent prices from rising too fast. For instance, as a Fed governor in September 1996, she and fellow governor Laurence Meyer urged then-Chairman Alan Greenspan to raise short-term interest rates to contain inflation, according to Mr. Meyer. (Mr. Greenspan didn’t yield, but inflation remained in check.)

She also was a leader of the drive at the Fed to formally establish an inflation target of 2%, a longtime goal of hers and Mr. Bernanke’s.

Her husband, George Akerlof, has skeptical views on free markets, which Ms. Yellen hasn’t discussed as a Fed official. In a talk at Warwick last year, Mr. Akerlof argued that “the public and economists have too great an acceptance that whatever markets do is right.”

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