Federal Reserve

Janet Yellen, set to be US Federal Reserve chief, is a driven woman

Passionate economist Janet Yellen is certain to revel in new role, despite being Obama's second choice for world's most important financial job

PUBLISHED : Sunday, 13 October, 2013, 12:00am
UPDATED : Monday, 14 October, 2013, 10:50am

When the deadly Loma Prieta earthquake struck San Francisco in October 1989, then-professor Janet Yellen was working in her sixth-floor office at the University of California at Berkeley.

Rather than reacting with alarm, she remained at her desk until she was urged by her colleague, Andrew Rose, to join him under a door frame where they would be safer.

"I was sure the building was going to collapse and I was going to die," said Rose, the co-author of several research papers with Yellen, the current vice-chairman at the US Federal Reserve in Washington.

"But she was quite calm right through the earthquake. I don't think she said a thing."

That composure should serve Yellen well now she is set to take over as the next chairman of the US Federal Reserve and the first woman leader of the US central bank in its 100-year history.

Yellen's most crucial dilemma will be to decide when - or how - to turn off the flood of cheap money the Fed has been pouring into the US economy at a rate of US$85 billion a month to kick-start recovery.

When the current chairman, Ben Bernanke, suggested in May he might be ready to start winding down the programme, markets from South America to southern Asia reacted violently.

Yellen has been known as a staunch supporter of Bernanke's medicine, but has also shown she is prepared to speak her mind.

Compared to her somewhat gnomic boss, she is a model of clarity. Ahead of the housing crash, when Bernanke was still dismissing the signs of a price bubble, and Yellen was San Francisco Fed president, she warned fellow policymakers there was "a 600-pound gorilla in the room, and that is the housing sector".

She said the risk of a house price crash and vast numbers of people losing their homes was causing her "appreciable angst".

But Yellen has acknowledged that she did little to rein in the 600-pound gorilla.

She is widely seen as a dove on Fed policy. She stresses the need to use the Fed's tools to boost growth and reduce unemployment in the sluggish aftermath of the Great Recession, rather than worry about igniting future inflation.

"She really knows a lot of economics, but she's intellectually flexible. She's not doctrinaire," said James Wilcox, a professor at Berkeley who has known Yellen since the1980s.

Wilcox, who recalled many discussions with Yellen over Szechuan shrimp and rice at a hole-in-the-wall Chinese restaurant near the Haas School, said: "Even when we disagreed a lot, and very vigorously, I always felt if I had the better evidence or line of argument, I always felt I could persuade her."

Yellen was not, however, Obama's first choice for the job. She won the nomination only after a long and unusually public battle that pitched her against one of the president's key advisers, former Treasury secretary Larry Summers.

Even within the White House it is unclear how much support Yellen really has.

Obama aides appear to have been briefing against her in the run up to the nomination, describing her as methodical, meticulous and somewhat distant.

She was not a "team player", anonymous sources suggested to media outlets.

But if anyone is prepared for a fight, it's the diminutive Yellen.

Laura D'Andrea Tyson, a friend and former Clinton administration official, said: "Janet is very tough - tough in her views and tough in her independence."

Some of Yellen's classmates at Fort Hamilton High School, from where she graduated in 1963, recall a smart and devoted student who seemed a little removed from their teenage world of music, parties and political ferment.

Each year, the editor of the student newspaper interviewed the class valedictorian. Yellen was both, so she interviewed herself. She talked about her love of travel and her rock collection.

"I've decided to major in math or anthropology or economics or ..." she wrote. After enrolling at Brown University, it did not take long to narrow the list.

Susan Grosart, a childhood friend, said: "She took her first economics course and came home and gave me the one-hour lecture on why economics was the greatest thing going."

Yellen decided to pursue a doctorate at Yale University after hearing a speech by James Tobin, the economist she still regards as her intellectual hero. Tobin was a keen defender of the view that government policy could lift an economy from recession.

Yellen's first job after leaving Yale was assistant professor at Harvard. She might never have made it to the Fed if the university had awarded her tenure.

She joined the central bank in 1977 as an economist in the division of international finance. There she met her future husband George Akerlof, who was working in the bank's division of research and statistics and would win a Nobel Prize in 2001.

They fell in love over discussions in the cafeteria at the Fed's Martin Building, known inside the central bank for its panoramic views of the National Mall and mediocre food.

"We liked each other immediately and decided to get married," Akerlof wrote in a personal history after winning the Nobel.

"Not only did our personalities mesh perfectly, but we have also always been in all but perfect agreement about macroeconomics. Our lone disagreement is that she is a bit more supportive of free trade than I," he wrote. They were both Keynesians, believers in the view that people act irrationally, markets function imperfectly and the resulting problems were not self-correcting - and that the government must help.

Friends describe Akerlof as a fountain of ideas, some brilliant, many indifferent. Yellen, they said, helped to frame a research agenda. She was a more rigorous thinker, and skilled at building and manipulating the theoretical models that are the primary tools of economic research.

Berkeley economist David Romer, a longtime friend, said: "He would float an idea and she would say, 'Here are the nine reasons that's stupid.'" If she could think of only four reasons," Romer said, then that was an idea worth discussing.

He added: "It was an incredibly fruitful partnership."

Her public financial disclosure for last year shows the couple held assets between US$3.4 million and US$7.4 million. They also reported owning a stamp collection valued from US$15,001 to US$50,000.

When they hired a babysitter for their son in the early 1980s, they decided to pay more than the going wage. They reasoned that a happier babysitter would provide better care.

The decision not only attracted a series of excellent sitters, it also inspired the couple to develop a new theory of the labour market. It remains an influential justification for the Federal Reserve's ability to stimulate job growth and a direct rebuttal to the classical view that monetary stimulus damages the economy.

The economics gene has been passed to Yellen and Akerlof's son. Robert Akerlof is teaching economics at Warwick University, England.

And he may well have picked up the basics at mealtimes.

His mother joked in 1995 that dinner at her house meant "a diet that is richer in discussions of economics and policy issues than many people would find appetising".

Bloomberg, The New York Times, Associated Press


Janet Yellen's CV

Born: August 13, 1946

Education: Fort Hamilton High School, Brooklyn, New York. Brown University, economics degree summa cum laude, and PhD in economics from Yale.

Family: Yellen is married to George Akerlof, a Nobel Prize-winning economist and emeritus professor at the University of California, Berkeley. Their son, Robert Akerlof, is an assistant professor at the University of Warwick.

Career: Assistant professor at Harvard; economist with the Federal Reserve board of governors; chairwoman of President Bill Clinton's Council of Economic Advisers; chief executive of the Federal Reserve Bank of San Francisco; vice-chairwoman of the Federal Reserve.

High point: Nominated as first woman to head the Federal Reserve.

Low point: Failing to shout loud enough when she realised the US housing market was heading for a crash.

What she says: "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not. Are deviations from full employment a social problem? Obviously."

What they say: "There's a toughness there. And I think there's a toughness to her that there isn't in Bernanke," Christina Romer, former chairwoman of Obama's Council of Economic Advisers and a close friend of Yellen, to The New York Times.

The Guardian