Janet Yellen’s departure, which had been expected, would leave the Fed with just three people on its seven-member board. That would be the fewest in the Fed’s history and could strain the board’s ability to manage the operations of the central bank.
WASHINGTON — Janet Yellen, chair of the Federal Reserve, said Monday that she would step down from the Fed’s board at the same time that she ends her term as chairwoman.
President Donald Trump decided earlier this month to nominate Jerome Powell, a Republican who sits on the Fed’s board, as the next chairman, deciding against offering Yellen a second term. Yellen, whose term as chair ends in February, could have remained on the Fed board until her term as governor expires in 2024.
Her decision to step down instead had been widely expected, though some Democrats had argued publicly and privately that she could best defend her legacy from the inside.
“I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses,” Yellen wrote Monday in a letter to Trump announcing her decision. “I am also gratified by the substantial improvement in the economy since the crisis.”
Yellen also praised the selection of Powell as her replacement, and promised to work toward a smooth transition.
Yellen’s departure would leave the Fed with just three people on its seven-member board, which would be the fewest in the Fed’s history and could strain the board’s ability to manage the operations of the central bank.
The dearth of governors also means that a majority of the votes on the Fed’s Open Market Committee, which sets monetary policy, are now held by the presidents of regional reserve banks, not political appointees. The committee consists of 12 voting members — the seven Fed governors, the president of the Federal Reserve Bank of New York and four additional Reserve Bank presidents.
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The Trump administration filled one vacancy on the Fed’s board earlier this year when Trump nominated Randal Quarles as the vice chairman of supervision. But it has not yet nominated any candidates to fill the three current vacancies, and now, with Yellen’s departure, Trump will have a fourth seat to fill.
Yellen, 71, has spent almost two decades at the Fed. President Bill Clinton named her as a governor in the mid-1990s. She returned to teach at the University of California, Berkeley, before going back to the Fed as president of the Federal Reserve Bank of San Francisco in 2004. She became vice chair in 2010.
As vice chair, she worked closely with the then-chairman Ben Bernanke on the Fed’s post-crisis stimulus campaign. She paid tribute to Bernanke in her resignation letter, writing that his “leadership during the financial crisis and its aftermath was critical to restoring the soundness of our financial system and the prosperity of our economy.”
After succeeding Bernanke in 2014, Yellen continued those efforts.
Among her most important achievements was persuading Fed officials to be patient and to repeatedly extend the stimulus campaign. She rallied her colleagues to the view that the economy had plenty of room to expand without driving up inflation. The Fed continued to hold down interest rates, and job growth continued at a pace many had regarded as unsustainable.
The unemployment rate fell to 4.1 percent in October while inflation has remained sluggish. The Fed has rarely come closer to its goals of maximizing employment and stabilizing inflation.
Andrew Levin, a Dartmouth economist who worked as an adviser to Yellen, credited her with “leading and managing a relatively large Fed committee with lots of independent voices.”
“Sometimes they call it a cacophony,” he said. “She managed to turn it into a symphony.”
Yellen drew on her background as an academic economist. As a professor at Berkeley, she wrote extensively about the mechanics of labor markets. But she broke with academic consensus when many experts underestimated the potential for job growth.
“What also counted were her common sense and her open mind,” Levin said. “That has made a material difference in people’s lives and livelihoods.”
Yellen’s focus on unemployment represented a shift for the Fed, which in the decades before the 2008 financial crisis honed a single-minded emphasis on controlling inflation.
She paid regular visits to job-training programs across the country, meeting with groups of workers to hear their stories.
Yellen also emerged as a stalwart defender of the stronger financial regulations imposed after the financial crisis, particularly after Trump took office and announced that he intended to sharply reduce regulation of the financial sector.
Yet Yellen’s successful management of the economy, and her calm and mild personal style, meant that her interactions with Republicans were largely devoid of hostility. Trump made a point of praising her even as he made her the first Fed chair in modern times to complete a first term without receiving a second.
Yellen’s term as chairwoman ends Feb. 3, but the exact timing of her departure depends on Powell’s confirmation progress. Although the legislative calendar is crowded with other priorities, he is not expected to face significant opposition and the Banking Committee scheduled a confirmation hearing for Nov. 28.