On February 3, Federal Reserve Chair Janet Yellen, the first woman to lead the central bank and likely the most qualified nominee ever for the post, will exit the Fed, leaving a legacy described as “near perfection” and with an “A” grade from a majority of economists.
And yet in 2014, the US Senate confirmed Yellen by a vote of 56-26, the lowest number of “yes” votes a confirmed Fed chair has ever received.
The economy under Yellen hasn’t been flawless — wage growth and inflation have remained sluggish — but generally, she’s done her job exceptionally well. She has overseen the biggest drop in unemployment of any Fed chair in modern history and the stock market’s continued rise, helped steer the continued economic recovery, and guided the return to pre-crisis policy.
“If we judge the Fed by its capacity and its performance in hitting the mandates or the objectives that Congress gives it — price stability, maximizing employment — the record of the economy under her chair has been just shy of stellar,” said Sarah Binder, an expert on Congress at the Brookings Institution and George Washington University.
President Donald Trump could have renominated Yellen for the spot — it is a norm for presidents to renominate Fed chairs picked by their predecessors — but instead, he passed her up for a still qualified, but less qualified, man. The Senate on Tuesday confirmed Jerome Powell as the next chair of the Federal Reserve by an 84-13 vote. Powell was appointed to the Federal Reserve’s board of governors by President Barack Obama in 2012.
“Janet Yellen: Leading economics scholar; former CEA chair, former SF Fed President & Fed Vice Chair: 56-26. Jay Powell: Not an economist; investment banking & private equity experience: 84-13,” observed University of Michigan economist Justin Wolfers on Twitter. “Explain the difference.”
“Yellen is the only Fed Chair not to be reappointed in the last 39 years,” noted Washington Post columnist Matt O’Brien. “This will never stop being absurd.”
A quick refresher on Yellen and the Fed
The Federal Reserve is the central bank of the United States. One of its main responsibilities is managing interest rates and influencing the availability and cost of credit in the American economy. It sets the “federal funds rate” — the interest rate banks charge one another for overnight loans — and can adjust the rate to sway the economy.
The bank has a “dual mandate,” a set of goals it is supposed to achieve: maximizing employment and stabilizing prices for goods and services. In practice, that means the Fed tries to keep the unemployment rate low and targets an inflation rate of 2 percent.
President Obama appointed Yellen, succeeding Ben Bernanke, who was appointed by President George W. Bush in 2006 and renominated by Obama in 2010. She arrived at a time when the Fed was still try to steer the US economy past the financial crisis. The central bank, under Bernanke, had dropped interest rates to 0 percent and implemented a tactic known as “quantitative easing,” an unconventional approach of buying government bonds and mortgage-related securities, in an effort to inject money into the economy and speed up the recovery.
Yellen oversaw the end of US quantitative easing in 2014.
In monetary policy terms, Yellen is considered to be dovish — meaning she prefers looser policies, such as low interest rates, that are meant to stimulate economic growth. (That’s opposed to hawks, who are more concerned about inflation and therefore inclined to increase interest rates.)
Powell, the next Fed chair, is thought to be dovish as well and is expected to continue many of Yellen’s policies. “On monetary policy, it’s hard to find a lot of daylight between them,” Binder said.
Yellen has had multiple detractors. She’s proven them all wrong.
Not only has Yellen had to face economic headwinds as Fed chair, but she’s faced political backlash as well. Though the Federal Reserve is meant to be an apolitical body, observers’ attacks on Yellen have been anything but.
Sam Bell, a Fed watcher and research adviser at Fed Up, a campaign to encourage the Federal Reserve to keep interest rates low, in a series of tweets on Tuesday laid out what various Republican lawmakers said about Yellen — again, probably the most qualified Fed chair nominee ever — when Obama nominated her in 2013. (Only Republicans voted against her.)
Yellen served on the Federal Reserve’s board of governors during the 1990s and was chair of the Council of Economic Advisers under President Bill Clinton. She served as president and CEO of the Federal Reserve Bank of San Francisco from 2004 to 2010 and became the Federal Reserve’s vice chair in 2010, ascending to chair in 2014.
Sen. Pat Toomey (R-PA) warned that Yellen at the helm of the Fed would continue the policies of her predecessor, Bush appointee Bernanke, and exacerbate “the danger of a dramatic spike in interest rates, unsustainable asset bubbles, and job-killing inflation.” Sen. Marco Rubio (R-FL) said he voted against her because of her support for monetary policies that “threaten the short and long-term prospects of strong economic growth and job creation.”
And the criticism continued past Yellen’s confirmation, despite what appears to have been a largely successful run.
Marvin Goodfriend, one of President Trump’s nominees for the Federal Reserve’s board, in 2015 said that “leadership at the Fed is very, very poor, to say the least.” Trump on the campaign trail often criticized Yellen, saying at a September 2016 debate with Hillary Clinton that the Fed was doing “political things” and keeping interest rates artificially low to prop up the economy.
Despite the attacks against her, Yellen has accomplished her mission. Unemployment is at 4.1 percent, and if it stays there, Yellen will complete her time (which ends on February 3) at the Fed with the lowest final rate of any Fed chair since 1970. The current inflation rate is hovering right around the Fed’s 2 percent target. US economic growth is picking up.
“And what did she get for it? Withering criticism for 4 years,” Bell wrote.
On Tuesday and Wednesday, praise for Yellen and the hashtag #ThanksYellen began to pop up on Twitter.
But despite her success, Yellen is now on her way out. “It’s hard to know what to make of it, except to say that the type of partisanship that we’ve seen elsewhere in Washington, certainly over the Obama years and before, that the intensity of partisan allegiance, even for President Trump, has seeped its way into the Fed,” Binder said.