Federal Reserve Vice Chairman Janet Yellen, who chaired the Council of Economic Advisers under President Clinton and served as a former head of the San Francisco Fed, was recently chosen by President Obama to replace Ben Bernanke as chairman of the Federal Reserve in February. Yellen will be the first woman to run America’s central bank, and this historic choice has received much attention in the press. “Some influential commentators seem determined to leave no stone unturned in the search for someone other than [Yellen] to take over Ben Bernanke’s job when his term as chairman expires in early 2014,” Simon Johnson acknowledged in The New York Times. “This discussion is both misguided and distasteful. Not only is Ms. Yellen perfectly well qualified to lead the Fed, she might be the best qualified potential Fed chief ever.” University of Michigan professor of economics Justin Wolfers declared, in Bloomberg News. “Yellen is quite simply more qualified for the job than any of her predecessors.”
These and other celebrations of her nomination are well deserved, not only because of Yellen’s fitness for the job but also because the choice of a seasoned female economist to run the Fed is a great victory for the advancement of women into senior roles in the world of financial policymakers.
In the first place, the Fed has more power than many Americans understand. According to the Federal Reserve, “Among the responsibilities of the Board of Governors are to guide monetary policy action, to analyze domestic and international economic and financial conditions, and to lead committees that study current issues, such as consumer banking laws and electronic commerce.
“The Board also exercises broad supervisory control over the financial services industry, administers certain consumer protection regulations, and oversees the nation’s payments system. The Board oversees the activities of Reserve Banks, approving the appointments of their presidents and some members of their boards of directors. The Board sets reserve requirements for depository institutions and approves changes in discount rates recommended by Reserve Banks.
“The Board’s most important responsibility is participating in the Federal Open Market Committee (FOMC), which conducts our nation’s monetary policy; the seven governors comprise the voting majority of the FOMC, with the other five votes coming from Reserve Bank presidents.”
The chairman’s position at the Fed is among the most powerful financial jobs in the world. America’s central bank has been credited with reviving the economy since the 2008 financial crash and, perhaps, even keeping us from a second recession. Congress and the Administration are moving toward another series of clashes on the budget and the federal debt ceiling. The Fed’s monthly $85-billion bond purchase program may be a critical factor in keeping U.S. growth positive.
These political battles will take place shortly after Yellen begins her term. (But first, she’s got to get through the Senate confirmation process. Senator Rand Paul recently put a “hold” on her appointment in a bid to force the Senate to pass a bill on more transparency for the Fed.) Yellen will not have a vote in the Capitol Hill battle, but her actions may cushion any blow dealt to the economy by Washington’s politicians.
.The choice of a woman to run the Fed at this critical time in American history was unexpected, since she would take over a job held by a powerful man who was present throughout the recession and its recovery, and his replacement would come from a pool of contenders that included Larry Summers, President Obama’s presumptive choice. Indeed, the competition within the Fed itself was significant. Along with Yellen there is only one other female member on the Fed Board based in Washington—Sarah Bloom Raskin, the former commissioner of financial regulation for the State of Maryland.
In addition, there are other very powerful people in the Fed system. These are the presidents of the 12 Federal Reserve regional banks, each of which represents a geographic area. Only two of the twelve regional presidents are women who hold jobs that are nearly as public as Bernanke’s. These presidents speak in the U.S. and around the world about their views on the policies of the Fed and the state of the American economy and monetary policy. What each says can move the markets, whether in support of current Fed policy or not.
The Federal Reserve has been primarily a men’s club, just as many companies and other organizations are. Yellen’s historic appointment may change the composition of the Fed’s board and its regional operations, since she is the first woman to lead this important agency. Her choice to run the Fed has been widely acclaimed because she has had such successful experience both as an economist and a policymaker. Each time a woman becomes a member of a public board, the CEO of a large company, or a member of the U.S. Congress, the chances increase for other women to take on similar leadership roles.