Could She Become the Most Powerful Woman in the World?

Janet Yellen
Getty Images
It's looking increasingly likely that Ben Bernanke will no longer be the Chairman of the Federal Reserve at this time next year. In an interview Monday, President Obama said Bernanke has "already stayed a lot longer than he wanted or he was supposed to."

When asked about his intentions regarding plans for the future, Bernanke hasn't said much, though the Fed chairman has decided to skip this year's Jackson Hole summit of world central bankers in August, where he would normally be responsible for delivering the keynote address.

In recent years, the Jackson Hole keynote has been an important stage for signaling big shifts in U.S. monetary policy, a key driver of economic dynamics not only in America, but around the world.

Getty ImagesU.S. Federal Reserve Vice Chair Janet Yellen
This year, the most important signal from the keynote may not be in the contents of the speech, but in who is delivering it in Bernanke's place: Federal Reserve Vice Chairwoman Janet Yellen, who is widely tipped as the frontrunner to replace Bernanke when his term expires in January.

If Obama does select Yellen to replace Bernanke, she will become the first woman ever to chair the Federal Reserve, putting her in arguably the most powerful policy-making role in the world. And of course, unless you follow the Fed, you've probably never heard of her.

(Global financial markets have reinforced the notion that the Fed chair is all-powerful in recent weeks: as fears that the Fed will begin slowing the pace of its monetary stimulus have seeped into the marketplace, U.S. government debt has sold off dramatically, causing major reverberations in virtually every market around the world. Because U.S. monetary policy is so influential, economist David Beckworth, for example, has referred to the Fed as a "monetary superpower.")

%VIRTUAL-pullquote-Ms. Yellen climbed the Fed ranks by being methodical rather than iconoclastic. She shows up at policy meetings with carefully crafted statements. Those who work with her say she arrives at the airport hours early."%By every account, Yellen is a thoughtful and brilliant economist, which has allowed her to rise to where she is today.

"Ms. Yellen climbed the Fed ranks by being methodical rather than iconoclastic," writes Wall Street Journal reporter Jon Hilsenrath in a recent profile of the Fed vice-chairman. "She shows up at policy meetings with carefully crafted statements. Those who work with her say she arrives at the airport hours early."

"[Yellen] is very low-key, but impresses people quickly with the depth of her understanding and the sincerity of her views," said fellow Berkeley professor Andrew Rose in 1994, describing her as "collegial, persuasive and effective."

She has also worked with the academic elite of the economics sphere her entire career. Her mentor at Yale, where she received her doctorate. in 1971, was Nobel-Prize winning economist James Tobin, whose legacy is enshrined in today's economics textbooks. After graduating from Yale, she taught at Harvard for five years. Then, she did a two-year stint (1976-1978) as a staff economist at the Federal Reserve, where she met her husband, fellow economist and future Nobel Prize winner George Akerlof.

After the Federal Reserve, Yellen was faculty at the London School of Economics for two years. Then, in 1980, she accepted a position at the University of California, Berkeley, where she stayed until her appointment to the Federal Reserve Board of Governors in 1994 by President Bill Clinton.

Months before his April 1994 nomination of Yellen, Clinton had selected one of Yellen's long-time colleagues in the Berkeley economics department, Laura D'Andrea Tyson, to chair the Council of Economic Advisers (making Tyson his top economist at the White House).

According to an Los Angeles Times report, Clinton's 1994 nomination of Yellen, Tyson was "deeply involved in the selection process for filling the Fed vacancies." The report went on to assert that "Yellen, who would succeed Republican Wayne Angell on the board, also fulfills the Administration's desire to name a woman or a minority to offset the appointment of [Alan] Blinder, a white male, to be Fed vice chairman."

(Tyson herself was reportedly tapped by Clinton over then-World Bank economist Larry Summers because Summers and Clinton's vice president, Al Gore, didn't see eye-to-eye on issues related to environmental economics.)

So began Yellen's long career in monetary policy-making, which has already been momentous in reshaping the directives that have emanated from the central bank and driven major changes in the global economic landscape.

One of the defining moments for Yellen that crystallized both her economic views and her character traits came two years into her tenure on the FOMC.

In a recent profile of Yellen, New York Times correspondent Binyamin Appelbaum tells the story:

In July 1996, the Federal Reserve broke the metronomic routine of its closed-door policy-making meetings to hold an unusual debate. The Fed's powerful chairman, Alan Greenspan, saw a chance for the first time in decades to drive annual inflation all the way down to zero, achieving the price stability he had long regarded as the central bank's primary mission.

But Janet L. Yellen, then a relatively new and little-known Fed governor, talked Mr. Greenspan to a standstill that day, arguing that a little inflation was a good thing. She marshaled academic research that showed it would reduce the depth and frequency of recessions, articulating a view that has prevailed at the Fed. And as the Fed's vice chairwoman since 2010, Ms. Yellen has played a leading role in cementing the central bank's commitment to keep prices rising about 2 percent each year.

Inflation has become one of the biggest stories in economics recently as annual inflation rates have been declining and seem stuck persistently below the Fed's 2.5% threshold for tightening monetary policy. Today's consumer price index release revealed that core price inflation remained stubbornly unchanged at 1.7% in May.

Persistently below-target inflation readings have provided support for the argument that the Fed should continue with its controversial bond-buying program aimed at providing monetary stimulus to the economy.

As arguably the most dovish member of the FOMC -- meaning she tends to focus on unemployment concerns rather than keeping inflation at bay -- Yellen has undoubtedly had a big role in shaping the course of current policy.

Yet Yellen's record shows that she has not always argued for easy monetary policy and higher inflation, despite her dovish tilt.

%VIRTUAL-pullquote-"The risk of an increase in inflation has definitely risen, and I would characterize the economy as operating in an inflationary danger zone." -- Janet Yellen, September 1996%Later in 1996, the economy was expanding, labor markets were tight, but core inflation was on a steady downward trend.

At the September 1996 FOMC meeting, though, Yellen argued, "I conclude that the risk of an increase in inflation has definitely risen, and I would characterize the economy as operating in an inflationary danger zone."

While Yellen ultimately supported then-Chairman Alan Greenspan's decision to leave interest rates unchanged, she couched her decision by saying, "I find myself very close to the margin and would also have been quite willing to support an upward adjustment of 25 basis points today, had you proposed that."

In 1996, Yellen's argument rested on the thesis that the labor market was too tight.

To be sure, things are much different now -- the unemployment rate remains stubbornly elevated around current levels at 7.6%, and concerns over inflation appear to be all but dead at this point.

And given the Fed's current policy stance -- committed to unprecedented monetary easing until signs of improvement in the labor market re-emerge -- perhaps it's just as accurate to say that Yellen has already become the most powerful woman in history.

Taking over the chairmanship in January would cement it.

More from Business Insider

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Could She Become the Most Powerful Woman in the World?
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
Read Full Story
  • DJI29348.1050.500.17%
  • NIKKEI 22524083.5142.250.18%
    Hang Seng28795.91-260.51-0.90%
  • USD (PER EUR)1.110.00070.07%
    USD (PER CHF)1.03-0.0005-0.04%
    JPY (PER USD)110.170.01500.01%
    GBP (PER USD)1.30-0.0003-0.02%