October 9, 2013

Janet Yellen more experienced than Fed predecessors

But Yellen’s emphasis on work and unemployment has become the focus of Republican critics.

By Don Lee And Marc Lifsher
Tribune Washington Bureau (mct)

WASHINGTON — Janet Yellen, President Barack Obama’s choice to head the Federal Reserve, comes to the post with more years and a wider range of experience at the central bank than her predecessors and a career-long focus on the issue that remains at the center of public concern over the economy — jobs and labor markets.

click image to enlarge

President Barack Obama applauds as he walks out the State Dining Room of the White House in Washington, Wednesday, Oct. 9, 2013, with outgoing Federal Reserve Chairman Ben Bernanke, right, and Janet Yellen, center, his nominee to replace Bernanke.

AP Photo/Pablo Martinez Monsivais

Yellen’s emphasis on work and unemployment, on which she produced several major scholarly papers during her many years as a professor at the University of California, Berkeley, has also become the focus of Republican critics and some on Wall Street who fear she is soft on inflation. The Fed has a dual mandate to maintain stable prices and optimize employment, and some experts, including some of Yellen’s colleagues at the Fed, have seen the central bank as being too willing to tolerate inflation in order to lower unemployment levels.

Last month Fed officials shocked investors and most everybody else by holding off on reducing their main stimulus program, worried that the economy and the job market in particular were still too weak. They were also concerned about the uncertain budget outlook and the threat of political gridlock, worries that proved prescient with the current standoff in Washington that has caused a partial shutdown of the government and raised serious risks of a U.S. default.

Minutes of last month’s meeting, released Wednesday, indicated that it was a “relatively close call” for several voting members of the Fed policy-making committee on whether to begin to cut back its bond-buying program. Officials worried that failing to reduce the stimulus could undermine the central bank’s credibility as financial markets were expecting a pullback. Most Fed officials, though, said they still expected to see the central bank starting to cut bond purchases by year’s end.

At a deeper level, the split at the Fed reflects the partisan struggle in Washington as well as divisions in the public at large. In recent years, conservatives increasingly have pushed back against the nation’s spending and debt and what they see as the threat of runaway inflation and other problems stemming from government policies. Aggressive monetary support by the Fed has been among the policies some conservatives have attacked.

For now, Fed critics have been largely quieted because inflation is very low and shows few signs of rapidly increasing in the foreseeable future. By contrast, unemployment remains high after four years of recovery. That has bolstered the Fed’s focus on maintaining stimulative policies to promote employment, of which Yellen, the vice chair, has been one of the strongest proponents.

During the recession and tepid recovery, the Fed, under the leadership of Chairman Ben S. Bernanke, has continually pumped money into the financial system while keeping its benchmark short-term interest rate near zero. Yellen has been a close ally of Bernanke, and if anything, probably has pushed for even stronger stimulus.

Yellen’s critics have often cited as evidence of her position a statement she made in early April: “I believe progress on reducing unemployment should take center stage” for Fed policymakers “even if maintaining that progress might result in inflation slightly and temporarily exceeding 2 percent” — the Fed’s target rate.

But many economists say Yellen’s other public remarks, long experience at the Fed and record suggest she is nothing like the inflation dove the critics portray. After reading 42 of Yellen’s public speeches, Stephen Oliner of the University of California, Los Angeles, concluded that she very closely toed the Fed’s traditional tough line on inflation.

“Now is not the time” to be worrying as much about inflation as unemployment, said Georgetown professor Harry Holzer, espousing the mainstream economists’ view of the current situation.

(Continued on page 2)

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