Janet Yellen was not well served by the process that culminated in her nomination Wednesday to be the next chairman of the Federal Reserve. President Barack Obama broadly implied, but did not openly state, his preference for former Treasury secretary Lawrence H. Summers, setting off a months-long struggle between pro-Summers and pro-Yellen factions. The fact that Yellen survived the competition at the insistence of liberal Democrats, who have pegged her as an easy-money “dove” more eager than Summers to fight unemployment and rein in big banks, may have had the effect of tilting perceptions of her beliefs before she’s had a chance to explain them herself.
Poorly handled though it might have been, Obama’s choice of Yellen is still a very solid one. Her credentials — as an academic economist, a Clinton White House adviser and a veteran of senior positions throughout the Fed system — are impeccable; they’re as strong as, or stronger than, those of anyone previously chosen for the position.
On the more substantive questions of monetary policy, her record leads us to expect that she will be driven not by “dovish” sentiment but by the data — specifically, numbers showing whether monetary expansion is still producing enough sustainable economic growth to outweigh the risks of future inflation or financial distortion. If confirmed, and if she serves a full term, Yellen would be in office until early 2018. That means, whether Yellen is a “dove” or not, the Fed’s exit strategy from its current massive money-printing will occur on her watch. Her thinking about that unprecedented, and exceedingly delicate, task should be a central topic at her confirmation hearing.
The Washington Post (Oct. 10)