Janet Yellen – The first woman to hold the position of Chair of the Federal Reserve

by Gideon

“Holding the world’s economy in her hands”

If Janet Yellen sneezes, the global economy could catch a cold.” These was the introduction line in the Jerusalem Post’s 50 most influential Jews for 2015, where Janet Yellen was listed second, just after Benjamin Netanyahu, Israel’s prime minister.  

Janet Yellen was born in Brooklyn, New York, in 1946 to a Jewish family in Brooklyn, New York, the daughter of Anna (née Blumenthal) and Julius Yellen. Her father, a doctor, practiced family medicine, and her mother, a teacher, stopped working to raise Janet and her brother. She attended Fort Hamilton High School.

“It’s not surprising that classmates of Janet Yellen at Fort Hamilton High in the Bay Ridge section of Brooklyn consistently describe her as an overachiever. Under her picture in the school yearbook, The Tower, Yellen is listed as the class scholar and member of the honor roll, the boosters club, the psychology club, and the history club, as well as the editor-in-chief of the Pilot, the school newspaper. When she graduated in 1963, she cleaned up, winning the Phi Beta Kappa award, the Mayor’s Committee Scholastic Award, the math award, science award, and the overall English department prize, in addition to being class valedictorian. “Janet is pretty much now what she was then: a straight arrow,” says Charles Saydah, a classmate. “She was a classic liberal, which meant you were antiwar, antibomb, but she was never strident about it. She was obviously the smartest person in the class—it wasn’t even close.” – Bloomberg Business

She attended Pembroke, Brown University’s women’s college, where she was one of a few women majoring in economics. “She was a stellar student, far and away above anyone else right from the start,” says Judith Twiggar Reinhardt, a fellow econ major. She earned a bachelor’s degree in economics from Brown University in 1967.

She received her Ph.D. in economics from Yale University in 1971. After teaching at Harvard University as an assistant professor, Yellen worked at the Federal Reserve from 1977 to 1978. From 1978 to 1980, she lived abroad, becoming a lecturer at the London School of Economics and Political Science, and then became a professor at the University of California, Berkeley, where she was also the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics.

From August 1994. She served as a member of the Board of Governors until February 1997.  In 1996, Yellen laid the groundwork for the Fed’s commitment to maintain inflation at 2 percent, arguing successfully that seeking to eliminate inflation completely would do more harm than good. Alan S. Blinder, who was vice chairman of the Fed during that time, remembers Ms. Yellen’s approach to policy differences as “argumentative, but in a good way.” – nytimes.com

She  left the Board to become chair of the Council of Economic Advisers through August 1999. She also chaired the Economic Policy Committee of the Organization for Economic Cooperation and Development from 1997 to 1999.

From 1997 to 1999, she served on the White House Council of Economic Advisers, and in 2004, she became president and CEO of the Federal Reserve Bank of San Francisco. Yellen showed remarkable insight into the country’s economic situation as one of the few economists to forecast the housing crisis of 2008.  “The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” Ms. Yellen said in 2006 at a Fed policy meeting in September. But even she did not believe that the problems in the housing market would have broader consequences. “Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,” she said. Earlier in the year, referring to the departure of the longtime Fed chief, she said it is “fitting for Chairman Greenspan to leave office with the economy in such solid shape” as Ben S. Bernanke succeeds him.

In 2007, Ms. Yellen and two other senior Fed officials said that  the turmoil in housing and mortgage lending has begun to threaten the overall economy, and she predicted in a speech that the housing decline will probably continue and will impose “significant downward pressure” on consumer spending. At a meeting of Fed policy makers later that month, she said that the Fed should act pre-emptively. “We could take a wait-and-see approach to the financial shock, incorporating its impact on our growth forecasts only after we observe its imprint in the spending data,” she said. “But such an approach would be misguided and fraught with hazard because it would deprive us of the opportunity to act in time to forestall the likely damage.”

In 2008, in the weeks after the collapse of Lehman Brothers at the peak of the financial crisis, Ms. Yellen becomes the first Fed official to say the nation has entered a recession. “The U.S. economy appears to be in a recession,” she says. “This is not a controversial view.” – nytimes.com

In 2010, she became vice chair of the Federal Reserve. Yellen has been an outspoken advocate for using the powers of the Federal Reserve to reduce unemployment, and has seemed more willing than other economists to risk slightly higher inflation to accomplish this goal.

In 2010, Yellen was selected to serve as vice chair of the Federal Reserve Board of Governors. In her first speech after being sworn in as vice chairwoman, Ms. Yellen acknowledged that the expansionary monetary policy of holding interest rates low to stimulate the economy, as the Fed has been doing for more than two years, “could provide tinder for a buildup of leverage and excessive risk-taking in the financial system.” But she did not say that such risks should deter the Fed from resuming purchases of government debt to prop up the flagging recovery. – nytimes.com

President Barack Obama nominated her to become the board’s chairman in October 2013.

“Yellen developed the ‘efficiency wage’ model of unemployment, suggesting that if people feel underpaid, they’ll work less efficiently and will be more likely to quit, implying that cutting wages could lower productivity. ‘She thinks (unemployment) is a terrible scourge,’ says Alan Blinder, a Princeton University economist nominated to the Federal Reserve Board of Governors with Yellen in 1994. ‘These are not just statistics to me,’ Yellen said in a speech to the AFL-CIO in February. ‘We know that long-term unemployment is devastating to workers and their families. The toll is simply terrible on the mental and physical health of workers.” – Bloomberg Business

Yellen is a member of both the Council on Foreign Relations and the American Academy of Arts and Sciences. She has served as president of the Western Economic Association, vice president of the American Economic Association, and a fellow of the Yale Corporation.

She has received a number of academic honors during her career. These include the Wilbur Cross Medal from Yale in 1997, an honorary doctor of laws degree from Brown in 1998, and an honorary doctor of humane letters from Bard College in 2000.

Yellen has written on a wide variety of macroeconomic issues, while specializing in the causes, mechanisms, and implications of unemployment.

“Yellen is characterized by those who know her as a brilliant thinker who focuses on the human side of economics. ‘She looks beyond the technical institutions to how they affect people. That might make her feel sympathetic for the unemployed … but is a person who’s concerned about human welfare considered weak or dovish? I don’t think so,’ says economist Robert Shiller, who’s writing a second book with Yellen’s husband George Akerlof, an economist and winner of the 2001 Nobel prize for economics. “We need a less macho government.” Bloomberg Business