A Look At The Legacy Of Fed's Janet Yellen During What May Be Her Final Jackson Hole Meeting

All roads led to Jackson Hole, Wyoming, this weekend, as central bankers, chief executives of banks, finance ministers, U.S. government representatives and academics all converged at this scenic location to air their views, both formally and informally, on various economic issues.

This two-day annual economic symposium kicked off Friday and was hosted by the Kansas City Federal Reserve.

Even as the Street was expecting Fed Chair Janet Yellen to give it a miss, she confirmed her attendance last week. Since then, the rumor mill has been working overtime, speculating whether it will be her "bare-all moment," given that her tenure would end early next year, unless President Donald Trump nominates her for a second term.

However, some see Yellen's decision to attend as a signal that she might get reappointed.

Trump's Chief Economic Advisor Gary Cohn has emerged as the frontrunner in the race to be the next Fed chair, but that does not necessarily mean smooth sailing for Cohn, as he leads the discussion on tax reform, Politico reported quoting a bank executive with knowledge of the situation.

Unless Cohn clears the way, the next alternative, Kevin Warsh, a former Fed governor and a visiting professor at Stanford University, could likewise find the road to the coveted post bumpy.

Irrespective of whether Yellen is reappointed, she has had a momentous four-year tenure.

See also: Doves And Hawks Of The Fed

Here's a summary of key milestone events/research that took place during her time at the helm.

4 Years, A Lifetime Of Achievements

• Ahead of her appointment, Yellen served as a governor of the board between 1994 and 1997. Subsequently, she served as the president of the San Francisco Federal Reserve Bank from 2004 to 2010. She was the vice chairman of the Board of Governors between 2010 and 2014.
• Yellen assumed office as the Fed chair in February 2014. Her term is set to expire February 2018.
• In her first public appearance after assuming office, which was at a conference in Chicago, she relayed the message that she was concerned more about Main Street than Wall Street. Subsequently, in a Time Square hotel ballroom address in New York, her script played out to market expectations, as she reassured that the current recovery needed an extended period of low rates.
• Under Yellen, the Fed concluded the final round of bond buying, also known as quantitative easing in October 2014, after acquiring more than $4 trillion of Treasuries and mortgage securities. The bond buying program was intended to flood the market with cheap liquidity, sending interest rates to nearly zero. With the kind of aggression with which the Fed pursued QE, its balance sheet is now bloated. Fed's portfolio of securities and other holdings has ballooned to about $4.5 trillion currently from around $800 million in 2007.
• Since then, the Fed has been buying bonds only to replace the ones that mature.
• Though a self-declared dove, Yellen expressed more concerns about the job market than inflation. Therefore, it was logical that Yellen began mulling on withdrawal of stimulus, as labor market conditions tightened. In March 2015, she warned of inflation overshooting the 2-percent target if the tightness of the labor market was ignored.
• Although there were predictions of a more rapid monetary policy normalization in 2015, the Fed showed no haste and began the liftoff with a quarter-point increment in December 2015, as inflation was kept low by falling oil prices and the dollar's strength.
• Again in 2016, despite fears of four rate increases, the Fed augmented rates only once, in December, with the slowdown in the global economy, the probability of tax cuts thrown up by the election of Trump and the rallying stock markets keeping the central bank quiet.
• Reasoning that inflation will remain below target, the Fed raised interest rates twice thus far in 2017, once in March and a second time in June. Interest rates are now at still-accommodative levels of 1–1.25 percent. In June 2017, the Fed also gave a blueprint of how it hopes to wind down its $4.5 trillion bond buying program.

A Brief Biography

Yellen was born August 13, 1946, to Jewish parents Anna and Julius Yellen in Brooklyn, New York, with her father working as a doctor and her mother as a teacher. The Fed chair is married to Noble prize winning economist George Akerlof and has a son, who teaches economics at the University of Warwick.

Yellen graduated summa cum laude from the Brown University, with a degree in economics in 1967. On completing her doctorate in economics from the Yale University in 1971, Yellen served as an assistant professor at the Harvard University.

After working for the Board of Governors as an economist between 1977 and 1978, she took up a faculty position at the London School of Economics and worked in that capacity from 1978 to 1980.

Other positions she has held include:

• Professor Emeritus at the University of California—Berkeley since 1990.
• Member of the Board of Governors ending February 1997.
• Chair of the Council of Economic Advisors for former President Bill Clinton through August 1999.
• Chaired the Economic Policy Committee of the OECD from 1997 to 1999.
• President of the San Francisco Federal Reserve Bank between 2004 and 2010.
• Vice chair of the Board of Governors, 2010–2014.

Former President Barack Obama nominated Yellen to the post of the Fed chair to succeed Ben Bernanke. The Senate confirmed her nomination on Jan. 6. Subsequently, she was sworn in on Feb. 3, 2014, thereby becoming the first woman ever to occupy the position.

Notable achievements during her various capacities ahead of her appointment as the Fed chair include her active role in setting a 2-percent inflation target in 1996. Her contention was that a zero-percent inflation would do more harm than good.

In 2005, she was counted among a few Fed officials, who forewarned about a brewing housing market bubble, which subsequently became full blown, claiming a casualty in the now-bankrupt Lehman Brothers due to the collapse of the subprime mortgage market.

She was also the first Fed official to call a recession in the U.S. in October 2008. Yellen was also a staunch supporter of former Fed Chairman Bernanke's expansionary monetary policy. Predicting that the downturn would be longer and deeper than the previous recessions, she vociferously called for stimulus measures.

In 2010, Yellen predicted a jobless recovery in which employment growth would be anemic, suggesting that the economy may not operate to its full potential until 2013.

Yellen's Equation With Presidents And Her Reputation

Ahead of her election as the Fed chair, Bill Clinton — under whom she served Chair of the Council of Economic Advisors, and who was also appointed to the Fed's board — had this to say about her when she was nominated in 2013:

"I also consider Janet Yellen a friend and I think she has shown good judgment," Clinton said in an interview on CNN.

"She's been right on everything that's happened in this whole aftermath of the financial crisis. So if she gets the job, I'll be thrilled, too."

When nominating her, Obama termed her as one of the nation's foremost economists and policy makers.

Although Trump expressed his displeasure over the way the Federal Reserve is being run and has called for curbing its powers, reports suggest that he might have to go back to her for persuading her for a second term.

"I like her; I like her demeanor. I think she's done a good job," Trump was quoted as saying by the Wall Street Journal.

"I'd like to see rates stay low. She's historically been a low-interest-rate person."

Yellen's forthrightness came to the fore at her most recent Jackson Hole address, as she backed Obama's regulatory reforms.

Of course, whatever Yellen has done has been seen as commendable, as she did all the handholding when the economy needed it. A task which is still undone is drawing up of a timeline for the winding down of the bond buying program. If she can do that the same way she went about monetary policy normalization without roiling the markets, it would stand a testimony to her temperament, skill and expertise.

_________ Image Credit: By Federalreserve - BKLM4457, Public Domain, via Wikimedia Commons