In July 1996, the Federal Reserve broke the metronomic routine of its closed-door policymaking meetings to hold an unusual debate. The Fed’s powerful chairman, Alan Greenspan, saw a chance for the first time in decades to drive annual inflation all the way down to zero, achieving the price stability he had long regarded as the central bank’s primary mission.
But Janet L. Yellen, then a relatively new and little-known Fed governor, talked Greenspan to a standstill that day, arguing that a little inflation was a good thing. She marshaled academic research that showed it would reduce the depth and frequency of recessions, articulating a view that has prevailed at the Fed. And as the Fed’s vice chairwoman since 2010, Yellen has played a leading role in cementing the central bank’s commitment to keep prices rising about 2 percent each year.
Yellen is now widely viewed as a logical candidate to succeed the current Fed chairman, Ben Bernanke, when his term ends in January. She has worked closely with him in shaping and building support for the Fed’s campaign to stimulate the economy and bring down unemployment.
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But some of Yellen’s critics remain wary. They worry she would not be sufficiently concerned about the possibility inflation will accelerate as the economic recovery gains strength. If nominated, she could face opposition from Senate Republicans who have repeatedly expressed concern the Fed’s campaign would destabilize financial markets and make controlling the pace of inflation more difficult.
“I think people read Janet Yellen’s speeches as saying that she puts a higher weight on joblessness compared to inflation” than the typical member of the Fed’s policymaking committee, said Vincent Reinhart, formerly the head of the Fed’s monetary policy staff and now the chief United States economist at Morgan Stanley. “And that includes Ben Bernanke.”
But Yellen’s personal qualities, highlighted by the 1996 episode, have helped her win supporters even among her ideological opponents.
“She makes an argument on the merits, and she sticks with it,” said Alan Blinder, an economics professor at Princeton nominated to the Fed alongside Yellen in 1994. “And she’s good at articulating an argument in a way that doesn’t leave people on the other side hopping mad at her.”
Despite their disagreement at the time, Greenspan said he continued to hold Yellen in high regard. “I did listen to her more carefully because she articulates her position in a way that you can follow it analytically,” he said. i
If confirmed, Yellen would become the first woman to lead a major central bank.
She is 66, seven years older than Bernanke. She would be 71 by the end of a four-year term as chairwoman.
But she remains in good health, and friends say that, like other prominent women of her generation, she regards herself as being in the prime of a late-blooming career. Nor would she be the oldest person to lead the Fed. Greenspan began his fifth and final term in 2004 at 78.
Yellen, slight and white-haired, does not loom like Paul Volcker nor cut like Greenspan. Her personal style more closely resembles Bernanke’s soft-spoken manner. The force of her arguments can catch people by surprise.
Kevin Hassett, a staff economist at the Fed when Yellen arrived in 1994, recalled that she started to eat lunch regularly in the staff cafeteria to subvert the hierarchical system that limited communication between Fed governors and the vast army of research economists. Other governors had tried to change the rules but Yellen, he said, found a way around them.
“It showed a kind of grace and wisdom that is very unusual in Washington,” said Hassett, now a fellow at the right-leaning American Enterprise Institute.
There has been no official word from the White House or Bernanke that the Fed will have a new chairman next year.
President Obama, for his part, has the opportunity to nominate the first Democrat to lead the Federal Reserve since President Jimmy Carter chose Volcker in 1979 — and the person he selects will serve a term that extends two years beyond his own.
Yellen has avoided questions about her future, but she, too, appeared to address the subject indirectly this month. Asked about the low number of female economic policymakers, she responded that it was “something we’re going to see increase over time, and it’s time for that to happen.”
She declined a request to be interviewed for this article.
There are other potential candidates for the job, including Roger W. Ferguson Jr. and Blinder, both former Fed officials, and economic advisers to Obama including Timothy F. Geithner and Lawrence H. Summers. But Yellen appears to be the front-runner in a race that has not started quite yet.
None of the other obvious candidates possesses the same combination of academic credentials and policymaking experience.
“In the realm of plausible candidates, she is by far the best,” said Christina Romer, a former chairwoman of Obama’s Council of Economic Advisers who is an economics professor at the University of California, Berkeley. She has known Yellen for years and counts her as a friend.
Yellen, born in Brooklyn, N.Y., in 1946, has said she became interested in economics as a way of thinking logically about how to help people. She studied at Yale under the Nobel laureate James Tobin, a leading proponent of the view that governments could mitigate recessions. Tobin, now dead, told Business Week magazine in 1997 that Yellen had “a genius for expressing complicated arguments simply and clearly.”
She built an academic career at Berkeley together with her husband, the economist George A. Akerlof, whom she met in a Fed cafeteria. Much of their work together highlighted flaws in the economic theory that markets operate efficiently, a theory that basically treats government policy as inherently costly. Their work showed that government, including central banks, could indeed adopt economic policies that improved people’s lives.
In 1994, the Clinton administration nominated Yellen to the Fed. She and Blinder were chosen to check the Fed’s tendency to curtail growth for fear of inflation. But in an unlikely twist, Greenspan became the strongest advocate for letting the economy grow more quickly, and Yellen helped provide intellectual justification for keeping interest rates low.
“She was much more aware of the current state of academic literature on fairly technical issues,” Greenspan recalled. “I found her very useful in that regard.”
Yellen began a second stint at the Fed in 2004 when she was named president of the Federal Reserve Bank of San Francisco. She has played a leading role in the Fed’s movement to provide “forward guidance” about the path of policy over the next several years, persuading investors it is safe to accept lower interest rates.
But it is easy to overstate her differences with those more focused on inflation. “I think I am as committed to price stability and the attainment of price stability as any member” of the Federal Open Market Committee, Yellen said at a 2010 luncheon in Los Angeles. “When the time has come, am I going to support raising interest rates? You bet.”