Over the past week, Donald Trump has made one thing clear: Fed chair Janet Yellen isn’t from “central casting.” Now that we know she won’t be reappointed as head of the Federal Reserve when her term expires in February, the compliments are flooding in.
With hindsight, it’s easy to find ways to praise Yellen. A decade after the global financial crisis, markets are soaring, inflation is contained, rates are rising gradually and predictably, and the long-anticipated unwinding of the Fed’s enormous balance sheet has progressed smoothly on her watch. Throughout, Yellen managed much of this with clear, data-driven communication.
Even her fiercest critics can’t find many bad things to say. Trump, who broke a 40-year tradition of reappointing a prior president’s Fed chair to name Jerome Powell in her stead, has described Yellen as “excellent” and congratulated her on a job well done.
Others mix their praise of Yellen with incredulity that she is being replaced.
But gushing about Yellen’s qualifications and performance is a relatively new thing, spurred on by her near-spotless term as Fed chair as well as the precedent-breaking decision not to reappoint her for another term.
It’s easy to chalk up the refusal to reappoint her in favor of a less-credentialed colleague as par for the course for the Trump administration. But skepticism of Yellen as Fed chair didn’t start this year. Back in 2013, she barely clinched the Fed chair nomination, and the language often used to describe her was very different, and far harsher than what Powell receives today.
After Ben Bernanke
The contest to replace Ben Bernanke after he served two four-year terms—first nominated by George W. Bush and reappointed by Barack Obama—came down to Yellen and Larry Summers. Summers seemed like the frontrunner (paywall): He was a personal friend of Obama’s, had advised the White House during the financial crisis, and was a decorated economist from Harvard.
He gained a reputation as an irritable genius—those close to him insisted he was quick-witted, brilliant, and sharp, but also abrasive, hard-to-work with, and a touch egomaniacal. In an infamous 2005 speech, he argued that behavioral genetics—innate differences in the aptitudes of women and men—could explain the lack of female scientists at top universities.
Yellen, meanwhile, spent four years at Ben Bernanke’s side as vice chair during some of the worst years of the crisis. Prior to that, she ran the San Francisco Fed and had held professorships at UC Berkeley, Harvard, and the London School of Economics. Her academic career focused on the study of workers and unemployment in hopes of understanding how policies could alleviate poverty. She studied unconventional monetary policy, the kind the Fed would later implement during the crisis.
“I came to understand the effect that unemployment could have on people in human terms,” she told Time in her first interview after becoming Fed chair. It’s this sort of attitude that led some to dub her a humanist instead of a dove or a hawk.
While people were more likely to describe her as empathetic and hard-working instead of brilliant (a term used to describe Summers liberally), Yellen had all the signs of a brilliant economist. She was a legend at Yale—her class notes, later dubbed the “The Yellen Notes,” were passed down by wave after wave of budding PhDs. Mentor James Tobin, a Nobel-winning economist, said she has a “genius for expressing complicated arguments simply and clearly.”
Despite a background that seemed near-perfect for the job, there was anxiety about Yellen becoming Fed chair. Could she handle a crisis? The US economy was in a fragile state; fears it would slip back into recession were widespread.
“The president, according to people familiar with his thinking, believes Summers has the experience and expertise to succeed Ben Bernanke,” wrote Albert Hunt for Bloomberg in 2013. “No one doubts Yellen’s credentials as an economist, but questions have been raised, mainly by those in the Summers camp, about whether she has the gravitas to manage a financial crisis.”
Paul Krugman, the Nobel-winning economist who was then a professor at Princeton, snapped at the suggestion that Yellen lacked gravitas (paywall) as she and Summers vied for the top Fed job:
“What does that mean? Well, suppose we were talking about a man with Yellen’s credentials: distinguished academic work, leader of the Council of Economic Advisers, six years as president of the San Francisco Fed, a record of working effectively with colleagues at the Board of Governors. Would anyone suggest that a man with those credentials was somehow unqualified for office?”
The insinuation that Yellen was ill-prepared to deal with a crisis was contradicted by the simple fact that she had already managed one at the Fed, and it was a doozy. She didn’t just help Bernanke design the emergency measures to prop up the economy during the aftermath of the worst downturn in generations, she saw it coming.
“I still feel the presence of a 600-pound gorilla in the room, and that is the housing sector,” Yellen, then the head of the San Francisco Fed, told colleagues (paywall) at a mid-2007 meeting, according to Fed transcripts. In the next meeting, a year before Lehman Brothers went bust, she foretold, scene by scene, how the crisis would play out: “A big worry is that a significant drop in house prices might occur in the context of job losses, and this could lead to a vicious spiral of foreclosures, further weakness in housing markets, and further reductions in consumer spending.”
When many of her fears were realized, she encouraged the Fed to keep interest rates low. By 2013, despite opposition, this looked like the right call. But as Yellen’s candidacy for Fed chair gained traction, critics fretted about the strength of a “female dollar,” arguing that the Fed’s accommodative monetary policies had less to do with boosting a flagging economy, and more to do with Yellen’s gender, of all things.
“Are we entering the era of the gender-backed dollar?” wrote the editorial board at The New York Sun. Allowing a woman to lead the world’s most powerful economic institution—run by men since its inception—meant the US had succumb to prioritizing gender equality over policy integrity, the thinking seemed to go.
“As an economist with long experience at the Fed, she doesn’t lack for professional credentials,” the Wall Street Journal’s editorial board wrote shortly thereafter (paywall). “But her cause has been taken up by the liberal diversity police as a gender issue because she’d be the first female Fed chairman.”
By September 2013, more than 300 economists had signed a letter urging Obama to choose Yellen as chair. Ultimately, Obama nominated Yellen, and she was quickly confirmed by the Senate. But in a way, the decision was made for him, since Summers withdrew from the race, citing fears that his confirmation process would be “acrimonious” (paywall).
Even after his withdrawal, some thought Donald Kohn, a former Fed vice chair who Obama had interviewed, or Tim Geithner, the former Treasury Secretary, were better picks than Yellen (paywall). Yellen became the first female Fed chair because she presented a neat political compromise—not Obama’s first pick, but appealing to Democrats worried about lax bank regulation and institutional sexism. One thing seems clear: the drama around her nomination had little to do with her qualifications and experience.
Back to the future
In recent months, Yellen once again found herself vying for the Fed job, this time against a colleague.
Powell, a Fed board member since 2012, happened into the job more or less by accident (paywall). After Trump’s election, the ex-lawyer and private equity manager without an economics degree was thrust into the running for the top job at the most powerful central bank in the world. Then, he got it.
Powell is a rich white Republican man with a prior career in business, much like Trump. But he is also an Obama appointee, so the argument that Trump needed to install his own person to clear away the legacy of his predecessor—as he has done at other important institutions—doesn’t apply.
Powell’s most commonly cited strength is darkly ironic for Yellen—he will provide “continuity” by following nearly identical policies as his predecessor. (Powell never voted against an interest-rate policy decision made during Yellen’s watch.)
Consider, also, how Powell and Yellen were covered in the run-up to their nominations as Fed chair. Powell’s unorthodox credentials hardly received the blowback you’d expect, given what Yellen went through four years ago. His supporters lauded his business acumen, his possible sway with Congress (he served a brief stint at the Treasury under George H.W. Bush), and his desire for bank deregulation. Why does an economist need to lead the Fed, anyway?
The question that had once plagued Yellen’s candidacy did return—could Powell handle a crisis? The consensus is pretty sanguine, calling him a good listener and manager. He is “adept at asking the right questions,” as a former Fed advisor put it. His years in business mean he won’t blindly accept the consensus, challenging the conventional wisdom when warranted.
Yellen, of course, had herself defied the prevailing wisdom—and an army of Fed economists—to push for historically low rates for years.
The first test
During Yellen’s first press conference as chair, she blundered a bit—or, at least, that’s how many characterized it.
The new Fed chair, who had preached the value of data-driven but cautious guidance on the central bank’s future plans, put a limit on the time between the end of the bank’s asset-buying program and a rate hike—six months. She almost immediately backtracked, making it clear the timeline was flexible and could be altered to fit the latest data.
The damage was done: Reports were quick to dub the episode a “rookie” mistake. “The more experienced Bernanke knew to avoid clarifying deliberately vague statement language,” Michael Feroli, chief US economist at JP Morgan Chase, said at the time.
Yellen, of course, was not the first chair to struggle with the intense public spotlight of such a powerful position. And she won’t be the last. But will Powell receive the same level of scrutiny when he takes over?