President Obama’s nomination last week of Janet Yellen to be chairman of the Federal Reserve System should be welcomed by our nation.
As a former colleague for a decade on the Federal Open Market Committee, I can say that Yellen brings enormous strengths to the role. She is deeply knowledgeable about both economic theory and how it plays out in the real world. She is firmly committed to the goals of the Federal Reserve — price stability, economic growth, and, importantly these days, financial stability. She is more than tough enough to stay the course in pursuing those goals. She is also a terrific listener and consensus builder and is adept at that new required skill of Fed chairmen, communication.
As a friend, however, I am struck by two conflicting emotions. First, I am overjoyed for her. She is the right person for the job at the right time. And I feel a great sense of happiness at the real possibility of having a woman at the head of the Fed for the first time in its 100-year history. Yellen has always been a role model for women in economic policy, and her nomination must be liberating to those following in her footsteps.
At the same time, that old saying “be careful what you wish for” comes to mind. The Federal Reserve faces a unique situation as it tries to navigate its way out of the extraordinary amount of support that monetary policy has provided to the economy. That level of support is one major reason why the US economy has maintained a modest level of growth this year despite the headwinds of fiscal tightening and slowing international growth. But sometime soon, that support needs to be slowly withdrawn, and over time, interest rates need to return to something like normal.
This high-wire act of keeping the economy moving with less and less monetary support without creating financial volatility that works to damage prospects for growth will be one of the most difficult challenges ever faced by a Fed chairman, or dare I say, any central banker anywhere. And getting that done against the backdrop of the political stalemate in Washington is an even more daunting task.
So as Yellen takes on the task of first being confirmed for the position, and then leading the Fed and the economy to a better place, I think a bit of concern for the difficulty of the dive is appropriate. We want — indeed, we need — Yellen to be successful, as that is essential to the continuing growth of our economy and the health of our financial system. In turn, she will need all our support as she fills this uniquely important position.