Does Probable Bernanke Successor Yellen Focus too Much on Unemployment?

Friday, 26 Apr 2013 08:02 AM

By Michael Kling

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Janet Yellen, widely viewed as Ben Bernanke’s successor as Federal Reserve chairman, has both admirers and foes.

Yellen is seen as an inflation dove putting more emphasis on fighting high unemployment rather than worrying about inflation. While supporters praise her economic credentials, detractors worry that she would be too soft on inflation. She could face opposition from Senate Republicans who have said the Fed’s quantitative easing (QE) will increase inflation and destabilize financial markets.

“I think people read Janet Yellen’s speeches as saying that she puts a higher weight on joblessness compared to inflation” than most other Fed members, Vincent Reinhart, former head of the Fed’s monetary policy staff, told The New York Times. “And that includes Ben Bernanke.”

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

On the other hand, he added, her nomination would probably not disturb financial markets since Yellen, now the Fed’s vice chair, already has substantial influence.

Kevin Hassett, a former Federal Reserve staff economist who is now a fellow at the American Enterprise Institute, thinks Yellen does not emphasize controlling inflation enough. “But I hold her in the highest possible regard,” he told The Times.

Others commend Yellen’s intellect and persuasive powers, even if they have policy disagreements with her.

“She makes an argument on the merits and she sticks with it,” said Alan Blinder, a Princeton economics professor and former Fed vice chairman, according to The Times. “And she’s good at articulating an argument in a way that doesn’t leave people on the other side hopping mad at her.”

“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 in 2010, according to The Times. “When the time has come, am I going to support raising interest rates? You bet.”

Still, in a speech in March, Yellen reiterated the importance of the Fed’s QE and re-enforced her appearance as a dove.

“I believe it’s appropriate for progress in the labor market to take center stage in the conduct of monetary policy,” Yellen said, Fox Business Network reported.

“I think she’s been clear. She’d be very much a dove,” said Dean Baker, co-head of the left-leaning Center for Economic Policy and Research.

“I think she is a likely pick, but I think it is likely that under her leadership the Fed will overstay its welcome with increased accommodation,” David Jones, president of DMJ Advisors and a former Fed economist told Fox Business Network. “No one knows how difficult it’s going to be to follow an exit strategy.”

Bernanke’s term is scheduled to expire at the end of the year, but he has not announced his plans.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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