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PD Editorial: Yellen is right fit for next Fed challenge

  • FILE -- Janet Yellen fields questions during a Senate hearing on her nomination to chair the Federal Reserve, in Washington, Nov. 14, 2013. Yellen has been a strong advocate of past stimulative policies, but understanding historic trends may not be useful in assessing when and how to scale back the Fed's extraordinary measures of the last few years. (Doug Mills/The New York Times) -- MOVED IN ADVANCE AND NOT FOR USE - ONLINE OR IN PRINT - BEFORE NOV. 24, 2013.

Janet Yellen may not be a household name, but trillions of dollars will soon ride on her decisions, even the words she chooses.

Yellen is the incoming chairwoman of the Federal Reserve -#8212; America's new central banker -#8212; and the first woman to serve in that role in the Fed's 100-year history.

The job may not sound glamorous, but few public officials have as much influence over the U.S. and world economies. Markets rise and fall on the Fed's economic forecasts, its decisions to tighten or ease credit and the pronouncements, however inscrutable, of the chairman.

The economy is growing slowly but the landscape awaiting Yellen, who was confirmed Monday by the Senate and starts her job on Feb. 1, is sobering: stubbornly high unemployment and an economy still healing from the burst of the housing bubble and the Great Recession that followed. Also awaiting Yellen are political challenges to the Fed's independence.

As chairwoman, Yellen must devise ways to rev up the nation's economic engine and begin winding down a Fed program that has kept benchmark interest rates near zero for more than five years.

With unemployment still stuck at 7 percent, and 2.6 percent of the workforce jobless for more than 26 weeks, economic growth must be the top priority for now. Yellen acknowledged as much in her Senate confirmation hearing. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," she said.

To keep interest rates low, the Fed has been buying up Treasuries and mortgage-backed debt. Despite an addition of about $4 trillion in assets to its balance sheet, inflation has remained below 2 percent. But the easy-money policy can't last forever, and Yellen can expect plenty of scrutiny from congressional Republicans and others who think the Fed already has waited too long to halt the practice dubbed quantitative easing.

As the Fed's vice chairwoman since 2010, Yellen has helped shape policies that put the economy on the path to recovery, while keeping inflation in check. But it's her expertise in labor markets and unemployment as much as any sense of continuity that makes her a strong choice to succeed Ben Bernanke as Fed chairman.

Just as Bernanke, an authority on the causes and effects of the Great Depression, was the right person to lead the Fed through the worst economic crisis since the 1930s, Yellen is right person for the job at a time when unemployment is stuck at 7 percent and, despite big corporate profits and exuberant stock markets, economic growth is less than robust.

Her credentials are impressive: She was president of the Federal Reserve Bank of San Francisco from 2004-10, where she issued early warnings about the real estate bubble.

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