Even a cursory observer of financial markets and the broader economy can attest to the prominent and influential role served by Ben Bernanke, the chairman of the Federal Reserve Bank of the United States.
Indeed, Bernanke’s efforts helped to save the U.S. economy from utter collapse, stave off deflationary threats resulting from insufficient aggregate demand and buoy a fractured housing market that has recovered faster than our European counterparts.
As signs point toward the culmination of Bernanke’s eight-year term set to take effect Jan. 31, 2014, all eyes have turned toward potential successors to navigate the choppy seas of contemporary monetary policy. Topping the list of likely candidates is Federal Reserve Vice-Chairwoman Janet Yellen.
A tenured macroeconomist at UC Berkeley specializing in unemployment issues and a long-time member of the Federal Reserve Board of Governors, Yellen encompasses the macro-prudential expertise and circumspective approach to understanding relations within the broader economy.
The selection of Fed chairman successor comes at a time when policy hinges on tactics and continuity. Indeed, one need only look at bond market volatility in June sparked by Bernanke’s not-so-implicit hints on tapering the Fed’s asset purchases.
Fortunately, Yellen may provide such seamlessness as she helped to design the $85 billion per month bond-buying program.
Since being appointed as president of the San Francisco branch of the Federal Reserve in 1994, Yellen has advocated a more “dovish” policy. Contrary to a “hawk” who seeks zero inflation at the expense of higher interest rates, a dove aims for lower interest rates amongst tolerable inflation. In essence, a dovish perspective on monetary policy suggests that the economic benefits from lower interest rates outweigh the limited costs to society from a manageable rate of inflation.
Yellen also possesses a trait in grave scarcity within contemporary policy circles: The ability to propose with conviction a plan of action without simultaneously denouncing competing options.
Such diplomatic spirit should be welcomed at a time when so many potential avenues for policy are blockaded by ideologues diametrically opposed to it.
Moreover, Yellen’s track record in forecasting macroeocnomic outcomes is nothing short of stellar. She was one of the only economists or policy makers to forcefully alert others of the imbalances in the housing market in 2005 through 2007.
In fact, the Wall Street Journal even ranked her No. 1 out of 14 Federal Reserve policy makers on more than 700 predictions on the labor market, economic growth and inflation from 2009 through 2012.
Critics, however, cite her lack of industry experience as a practitioner in financial market regulation as a potential drawback. I find this reservation lacking.
Yes, understanding deeply the interactions between the macroeconomy and the financial sector is a requisite for success as Fed chairman. That said, the Federal Reserve is not charged with regulating financial markets.
The Fed is set to abide by their dual mandate of price stability and maximum employment, whereas continuous supervision and regulation of financial market activity is facilitated by the Securities and Exchange Commission.
Other notable candidates for Fed chairman successor include the cagey and often controversial Lawrence Summers.
Summers served as treasury secretary under President Clinton from 1999 through 2001 and, more recently, as the National Economic Council Director under the Obama administration from 2009 through 2010.
Contrary to Yellen, Summers, the one-time Harvard president, does offer a finance industry background — a feature many think may help to manage the complex dynamics between Fed policy and the ever-expanding influence of financial market activity on society.
However, Summers’ role within the Obama administration may prove to compromise his candidacy for Fed chairman as the central bank seeks an apolitical position on all matters.
Bernanke’s accomplishments as Fed chairman cannot be overstated. His fortitude and willingness to pursue the central bank’s dual mandate is admirable and Janet Yellen, his deputy, may well provide the continuity necessary to guide the economy to the shores of “full” recovery.
Dr. Nicholas J. Mangee is assistant professor of economics at Armstrong Atlantic State University and can be reached at Nicholas.mangee@armstrong.edu.