Janet Yellen won a confirmation vote in the US Senate Monday, setting her on track to become the next Federal Reserve chair and to guide the central bank’s policymaking through a new and challenging economic era.
She’ll be the first woman ever to hold the job. She’s also viewed as unusually well prepared for the role, having served on the Fed’s governing board, heading one of its regional banks and, most recently, serving in the No. 2 seat next to outgoing Chairman Ben Bernanke.
But when Vice Chair Yellen takes the reins later this month, it won’t be a time for resting on her accomplishments.
The nation’s unemployment rate stands at a 7 percent, down from its post-recession peak but still an uncomfortably high level affecting millions of US workers.
The Fed, meanwhile, has ballooned its portfolio of bond assets to some $4 trillion in an effort to support the economy’s recovery by adding downward pressure on long-term interest rates. It also brought short-term interest rates to historic lows near zero percent.
Yellen was confirmed with a 56-to-26 Senate vote early Monday evening, with the substantial number of “no” votes, symbolizing how the Fed’s role has come in for greater scrutiny and criticism in recent years.
Where many economists say the Fed’s efforts did much to steer the economy out of recession, the US central bank is not particularly popular with the American public.
Yellen’s task, as many economists see it, is to navigate a careful and gradual transition – keeping pressure on the monetary throttle to help the job market get back to normal, while also setting the stage for the Fed’s own monetary policy to get back to normal, too.
It may go smoothly. For now, labor conditions are improving, US stock indexes have been finding record highs, and inflation is modest. But there’s no guarantee, and the route ahead looks more difficult than what the Fed tries to chart in more typical times.
Yellen’s job will also be, in part, to try to build the Fed’s brand as an institution serving all Americans, not just power brokers on Wall Street or in Washington.
When senators held a hearing on the Yellen nomination back in November, she left little doubt that she sees her first mission as continuing to promote healthy growth.
“Unemployment is … still too high, reflecting a labor market and economy performing far short of their potential,” she said in her prepared testimony. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
That more normal approach by the Fed would include higher short-term interest rates (perhaps starting some time in 2015), gradually winding down a campaign of monthly bond purchases (something the Fed just began to do at its December policy meeting), and ultimately shrinking the Fed’s bond portfolio.
At the same time, another key to providing a stable economic climate has nothing to do with interest rates or “quantitative easing” (the bond purchases). Rather, it has to do with regulating and supervising financial firms.
Yellen and her colleagues at the Fed are part of a new oversight system, put in place after 2008, designed to guard against a new financial crisis in the banking system.
President Obama said Monday evening that his nominee is up to this job of fostering a stable financial system, and that she’ll strike a sound balance in monetary policy.
“Janet is committed to the Fed’s dual mandate of keeping inflation in check while also addressing our most important economic challenge by reducing unemployment and creating jobs,” Mr. Obama said in a statement issued by the White House.
Some Republicans have voiced worry that the Fed’s policies will open the door to a resurgence of inflation or promote price bubbles in assets like stocks or real estate.
On the left, support for Yellen has been solid (she’s a Democrat). And some Republicans joined Democrats in supporting her nomination on a day when a number of senators were absent.
Yellen grew up in New York’s Brooklyn borough and taught for years at the University of California, Berkeley, before taking a succession of policy roles at the Fed.
Neera Tanden, president of the Center for American Progress in Washington, said in a statement released after the confirmation vote that “as the first woman to run the Federal Reserve, Janet is breaking yet another glass ceiling in an arena full of gender barriers.”