Yellen: Strong Fed voice, bold economic steward
Janet Yellen will WASHINGTON — go into history books at the first woman to have led the Federal Reserve in its 100-year history. But Yellen will be remembered for much more than breaking a glass ceiling at the world’s leading central bank.
Here are three areas where Yellen made her mark on the Fed and the U.S. economy:
Advocate for rate cuts
As vice chair during Ben Bernanke’s second term as Fed chairman from 2010 to 2014. Yellen was among the first Fed officials to recognize the gravity of the risk posed by the subprime mortgage crisis and to grasp the severity of the Great Recession.
Transcripts of Fed meetings in 2008, when Lehman Brothers’ collapse ignited the scariest phase of the financial crisis, show Yellen was a leading advocate for aggressively slashing interest rates to help buttress the financial system.
As millions lost jobs, Yellen was also a vigorous supporter of Bernanke’s drive to take emergency actions that the Fed had never before attempted: buying Treasury and mortgage bonds to further drive down long-term borrowing rates. The bond purchases swelled the Fed’s balance sheet five-fold to $4.5 trillion and raised alarms among critics, but the lower rates helped the job market heal.
The gamble pays off
By the time Yellen took over as Fed chair in February 2014, the recession had ended, but the pace of growth remained anemic. And the job market had yet to recover all of the 9 million jobs that had vanished during the recession.
So Yellen proceeded to guide the Fed to maintain an aggressively stimulative policy, with record-low rates and bond purchases to hold down long-term loan rates. Some critics warned that Yellen was setting the stage for runaway inflation or dangerous asset bubbles.
Thus far, Yellen’s gamble that the Fed could leave rates at low levels for years longer than some had thought has paid off. The unemployment rate, which peaked at 10 percent in 2009, is just 4.1 percent — the lowest since 2000.
Her place in history
Some of Yellen’s critics, including conservative Republicans in Congress, remain unbowed. They assert that by refusing to move earlier to normalize Fed rates to shrink the Fed’s bond holdings, Yellen might have elevated the risk of future high inflation or of dangerous bubbles. These critics say they fear that a worsening inflation picture might then compel the Fed to raise rates so quickly as to tip the economy into a recession.
Yellen has to hope future trends are kinder to her than they were to Alan Greenspan. When he stepped down as chairman in 2006, Greenspan was being hailed as the “maestro” for having skillfully managed the economy. But the next year, the first tremors from the subprime mortgage crisis were being felt. By 2008, the economy was enduring its worst financial crisis in seven decades. Greenspan’s reputation suffered a severe blow.
Yellen could broaden her place in history if she became the second person to remain on the Fed’s board after stepping down as its leader. So far, she has been mum about her plans once her term as Fed chair ends.