When top Federal Reserve officials meet this morning at their Washington headquarters for a policymaking session, they will gather first around a diminutive, white-haired woman to offer congratulations.
Janet L. Yellen, president of the San Francisco Federal Reserve Bank, is already one of them, but President Obama is about to nominate her to succeed Fed Vice Chairman Donald L. Kohn when he retires in June. Yellen, a one-time top economic adviser to former President Bill Clinton, is well liked and admired for her intellect and knowledge of macroeconomics, and Fed watchers say she will provide continuity in a key position during a challenging time for the central bank.
"She knows the Fed and is committed to it," said Alice Rivlin, a senior fellow at the Brookings Institution who is the only other woman ever to have been Fed vice chairman. "I have nothing but enthusiasm for Janet's appointment."
Because of her macroeconomic strengths, "she is more naturally a vice chair than running the San Francisco Fed. They need her in Washington," Rivlin said.
With rare exceptions, the vice chairman backs up the chairman, and that surely will be the case with Yellen and Fed chief Ben S. Bernanke. They are on the same policy wavelength—balancing inflation by pumping enough money into the economy to support economic growth and reduce the nation's 9.7 percent jobless rate.
Yellen's critics worry that a focus on keeping interest rates low would overlook real concerns about inflation. She recently said that rates should stay low until the economy recovers more.
In a speech last month, Yellen said that the greater worry about inflation over the next few years is that it may be unacceptably low rather than too high. There is so much slack in the economy that inflation, excluding volatile food and energy prices, has been running "below the 2 percent rate that I and most of my fellow Fed policymakers on the Federal Open Market Committee consider an appropriate long-term price stability objective."
She added that “with slack likely to persist for years and wages barely rising, it seems quite possible that core inflation will move even lower this year and next."
Given that slack, and the prospect that the economy won't grow fast enough to bring unemployment down quickly, she said, "I believe this is not the time to be removing monetary stimulus."
Some other Fed policymakers are concerned that the central bank may not be nimble enough to pull back quickly from some of the extraordinary steps it has taken to stimulate the economy when the time comes to do so, and that such a delay could generate inflation pressures. But even that group of so-called inflation hawks isn't pressing for a significant pullback immediately.
"There isn't any reason financial markets should be worried about her appointment," Rivlin said. "That whole spectrum of hawk-to-dove business is overplayed."
Economist Laurence H. Meyer, who served with Yellen on the Fed Board, also praised her appointment in a blog from Macroeconomic Advisers, for which he is vice chairman. Yellen is, he said, "one of the best economists I have ever worked with, and someone whose judgment I so much respect."
"She also has style" and the ability to influence her colleagues, Meyer continued. "You do not persuade and unify by being abrasive, cocky, or appearing to have an oversized ego ... You persuade through the logic of your arguments, your willingness to listen to others on the Committee, and the confidence that you command among your peers."
Yellen is dedicated to public service. In 1994 she took leave from Berkeley for what turned out to be five years while she served as a Fed Board member. In 1997 she became chairman of Clinton's Council of Economic Advisers for two years. During that period, her husband, George Akerlof, divided his time between teaching at The University of California at Berkeley and the Brookings Institution in Washington, D.C.
Yellen would succeed Kohn when he steps down at the end of June. The White House reportedly is working for a smooth transition, with Yellen ready to take office once Kohn leaves.