Exit of exemplary Fed governor
The US Federal Reserve can take some blame for failing to see risks building up in the years preceding the global financial crisis. But perhaps more than any other major policy making institution in the world, the Fed has acquitted itself well in the decade since.
The competent and right-minded running of the Fed remains absolutely indispensable to stability in the US and beyond. It is unfortunate therefore that Janet Yellen, who has chaired the central bank since 2013, will be replaced when her term expires in February.
Yellen’s tenure has largely pursued the philosophy and style of her predecessor, Ben Bernanke. The Yellen Fed has been prepared to err on the side of monetary laxity and it has continued to use historically unusual tools to provide stimulus. Although it has tightened policy, probably somewhat prematurely, it has clearly signalled a gradual approach distinct from the traditional Fed style of an inexorable sequence of moves.
Yellen has repeatedly emphasised that the economy has not returned to a pre-crisis normal — it has recently delivered robust growth without much inflationary pressure — and monetary policy must adapt to that. Her style of governing, too, has been apposite in a world of uncertainty. In contrast with Bernanke’s predecessor, Alan Greenspan, Yellen has run the Fed in a much more collegiate fashion. She was prepared to countenance dissent without it descending into cacophony and division.
In terms of the Fed’s philosophy of monetary policy, Yellen’s successor, Jay Powell, is likely to show a welcome degree of continuity. But his is only one of a string of appointments that President Donald Trump is due to make to the Fed’s board. Yellen has said she will leave the board of governors when her term as chair is completed, waiving the right to remain as a member until 2024. That is a pity, because a strong and articulate voice in favour of the current approach to monetary policy and financial regulation could be extremely valuable. London, November 29.