A Woman on the Move

FISCAL MONITOR

Federal Reserve Vice Chairwoman Janet Yellen speaks at an International Monetary Fund event. IMF photo via Flickr

Janet Yellen is about to become the most powerful female in U.S. political history, and most Americans have never heard of her.

Granted, we’ve had women in positions of political power before this point.  There have been three female secretaries of state – Madeleine Albright, Condoleezza Rice, and Hillary Clinton – each of whom was fourth in the line of presidential succession.  Our two female vice presidential nominees, Geraldine Ferraro and Sarah Palin, ended up losing.  One woman, also Hillary Clinton, came very close to gaining the presidential nomination of a major political party.

Sandra Day O’Connor, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan have all been members of the Supreme Court.  You could also make the case that some First Ladies, such as Eleanor Roosevelt and Hillary Clinton (again), held enormous power through their influence over the president.  Nancy Pelosi has served as Speaker of the House of Representatives, placing her second in the line of presidential succession, arguably the highest ranking achieved by a woman in America’s political system.

Despite the achievements of all of these ladies, Yellen will still be able to gain more power than any of them if she fulfills analysts’ expectations and receives President Obama’s nomination to become the next Chairman, err, Chairwoman of the Federal Reserve Board of Governors, replacing the outgoing Ben Bernanke.  Currently the Vice Chairman of the Board, Yellen became the presumed frontrunner when former Treasury Secretary – and star of the film The Social Network – Larry Summers withdrew from consideration for the post.

While not everyone is convinced that Yellen will be Obama’s pick, the odds of anybody else outmaneuvering her seem about as likely as Alabama losing a football game: not impossible, but definitely improbable.  The White House has apparently already directed Democratic U.S. Senators to voice their support for Yellen, a pretty sure sign that she is going to be the nominee.

Money, Money, Money

So if Yellen does get picked, how can I be sure that she will be the most powerful woman in U.S. history?  One word: money.  A second word: independence.  Combine those two things and you will see why this job is so much more powerful than a wimpy Cabinet post or Congressional leadership role.

The Federal Reserve System is a large institution, with twelve Federal Reserve banks throughout the country.  There are seven members of the national Board of Governors, all of whom are appointed by the U.S. president to fourteen-year terms and have to be confirmed by the Senate.  In addition, the president nominates a Chairman and Vice-Chairman to four-year terms, with a Senate confirmation process once again being required.  If the president desires, he (for we’ve never had a she) can reappoint the same person for consecutive four-year terms.  (In Alan Greenspan’s case, he stuck around for 18 years, enough to impress even J. Edgar Hoover.)

Federal Reserve Eccles Building photo

Inside the Federal Reserve’s Washington, D.C. headquarters. Official Federal Reserve photo

The beauty of being on the Federal Reserve Board of Governors is that once you’re in, you are pretty much untouchable.  Sure, you still have to duke it out with your six colleagues when setting monetary policy, and there is some limited Congressional oversight.  But unlike Cabinet officials, Fed governors do not take orders from the president; and unlike members of Congress, they do not have to keep their constituents happy.  The Board has a fairly free hand when it comes to setting policy, and no one is more powerful than the Chairman…or Chairwoman.  That’s the kind of power that everyone wants to have, and Janet Yellen is about to get her hands on it.

Birds of a Feather

Because of the level of influence that the Fed chairperson (gender neutrality is best, right?) has, people are naturally curious about Yellen’s personal views.  One question seems to be more important than any other: Is she a hawk or a dove?

You might be wondering why anyone would ask this question, since being a human and not a bird is pretty much a minimum requirement for becoming chairperson of the Federal Reserve.  Don’t worry: this is just another one of those metaphors that academics like to use to confuse everyone else.  I most commonly hear these terms used in reference to a politician’s foreign policy stance: supposedly, “hawks” prefer a more aggressive foreign policy (including greater military engagement), while “doves” are all about the diplomatic, less confrontational route.  However, that is not the particular meaning that is being used here.

Hawk and Dove

Photos by Ian Parkes (left) and Kevin Law (right)

Economists use the terms “hawk” and “dove” to describe whether or not someone prefers to keep inflation low (hawks) or keep unemployment low (doves).  Quite often, those crafting monetary policy have to make a trade-off between the two, as the economic growth that produces jobs often leads to higher inflation, and the interest rate hikes meant to keep inflation in check can halt economic growth in its tracks.

After conducting some research, I can tell you that the general consensus is that Yellen is more “dove”-ish: her biggest concern is getting the unemployment rate down.  However, this is not a universal opinion.  This article in The Atlantic makes a good case that Yellen adapts her strategy to fit the current economic conditions.  She favored policies to bring down inflation in the ‘90s, when jobs were more plentiful and wages were rising.  In 2013, inflation is arguably less of a concern for the U.S. economy than the weak jobs market.

“It’s true that Yellen isn’t very worried about inflation right now. And she thinks the Fed should keep rates lower for longer than it normally would, even if inflation rises a bit,” wrote author Matthew O’Brien, “But that’s only because she thinks unemployment is and will be a bigger problem than inflation today and tomorrow. If that changes, so will she.”

Yellen speaking at George Washington University.  Official Federal Reserve photo

Yellen speaking at George Washington University. Official Federal Reserve photo

Bloomberg’s Businessweek magazine explained that Yellen is “credited with forming the Fed’s communications policy, including quarterly press conferences by the chairman, and for arguing to maintain the Fed’s zero interest rate policy and continuing bond purchases.”

As the San Francisco Federal Reserve Bank Chairwoman during the recent financial crisis, the Washington Post reports, “While Yellen voiced one of the most prescient diagnoses of the looming crisis, her position on the West Coast left her little role in sculpting the response.”  The same article adds, “Yellen has spent the past three years trying to persuade Bernanke and the rest of the committee to adopt her preferred course for monetary policy, advocating more aggressive steps to pump money into the economy to bring down unemployment.”

We will not know for sure until she takes the job just what kind of chairwoman Janet Yellen will be.  The degree to which she chooses to maintain the policies championed by current Chairman Ben Bernanke or not is yet to be determined.  Still, one thing is for sure: whatever she does is bound to make waves.  One word from Bernanke has had the power to send world markets tumbling or soaring.  It’s enough power to intimidate anyone, but my guess is that Yellen is up to the task.  So now that the media has already given her the job, let’s see if President Obama and the Senate decide to follow suit.

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  1. Pingback: Church & State | Update: Janet Yellen to Be Named Fed Chief

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