Janet Yellen: a straight arrow

Published: Oct 2015
Silhouette of an archer

Most recently, Janet Yellen made the headlines when she announced that the US Federal Reserve, after earlier signalling its intention to end its zero interest policy in the near future, was holding fire on a rate hike. Fortunately, Yellen has been confronted with difficult decisions to make numerous times already in her long career in finance, experience which the US – and the global economy – will no doubt be counting on moving forward.

Key facts

13th August 1946
Brown University, B.A. in Economics, 1967; Yale University, PhD in Economics, 1971.

Janet Yellen made history back in 2014 when she became the first female head of the US Federal Reserve (the Fed), almost a century after it was founded in 1913. This announcement also meant she was the second ever woman to lead a central bank in a developed nation – the first being Elvira Nabiullina who heads Russia’s central bank.

Just this year, Yellen was named Forbes’ fourth most powerful woman in the world, and the highest ranked woman within the world of finance. What preceded this accolade is best described as a career with barely a moment’s rest, including on-and-off service to the Fed since 1977 and work for former President Bill Clinton as Chair of the Council of Economic Advisers between 1997 and 1999.

With the latest announcement from the Fed that there will be no increase in interest rates this year (when it eventually happens, it will be an historic move as it hasn’t attempted since 2006), Yellen’s workload doesn’t look set to lighten anytime soon. What’s more, whilst workers in the US on average retire at the age of 61, Yellen celebrated her 69th birthday this year. So, just how has she successfully redefined the career trajectory for women in finance?

Flying start

Born in Brooklyn, New York, to a mother who taught at a local junior school and a father who was a doctor, Yellen’s early years in education were impressive: she attended Fort Hamilton High School, excelled in many subjects and was editor-in-chief of her school newspaper. Yellen became valedictorian of her graduating class in 1963 and, according to The New York Times, it was a school tradition for the editor to interview the valedictorian – so Yellen interviewed herself! It is perhaps unsurprising that her classmates have consistently described her as an overachiever.

Yellen graduated summa cum laude with an economics degree from Brown University in 1967, where she was one of only a few women majoring in this subject, before going on to receive her PhD from Yale University in 1971. She made economics her career choice after attending lectures held by James Tobin, a Yale professor who believed that economies can be rescued from recession through governmental intervention, in other words, that governments should alleviate downturns with aggressive public spending. “There was something about (Tobin’s) strong sense of morality and social responsibility that greatly impressed me,” Yellen told Reuters in 2012. And this human-centric stance is something that has stayed with her throughout her career (see chart 1).

During her earliest stretch at the Fed, working as an Economist for the Board of Governors, Yellen began to gain respect within the central bank and from others in the wider financial market – something which she has only built upon in more recent years. It elevated her profile such that she caught the attention of the Clinton White House and, in 1997, she became the Chair of the Council of Economic Advisors. In this role, Yellen often argued for market-based solutions to political problems. One example: Clinton’s environmental advisors wanted the US to follow Europe’s lead in setting high pollution reduction targets, but Yellen warned that the move could harm the country’s economic progress by hampering growth in manufacturing.

Chart 1: Career timeline

  1. 1971-1976Assistant professor at Harvard University
  2. 1977-1978Economist, Board of Governors, the Fed
  3. 1978-1980Lecturer, London School of Economics
  4. 1980Faculty member, University of California, Berkeley
  5. 1994-1997Member, Board of Governors, Fed
  6. 1997-1999Chair, Council of Economic Advisors, Bill ClintonChair, Economic Policy Committee, Organisation for Economic Cooperation and Development
  7. June 2001Co-author, ‘The Fabulous Decade: Macroeconomic Lessons from the 1990s’
  8. 2004-2010President and Chief Executive, the Fed. In 2010, Yellen became Vice Chair of the Fed
  9. October 2013President Obama nominates Yellen to be next Chair of the Fed
  10. January 2014Confirmed as the Chair of the Fed

Source: CNN

Prevailing views

It is typical for a range of opinions to be prevalent within Yellen’s line of work. Different standpoints on monetary policy, for instance, acknowledge that whilst the Fed’s mandate is to hold prices low and stable as well as ensuring sustainable employment at the highest level in the country, there is plenty of scope when it comes to judgements on how this should be achieved with interest rates. Yellen is often characterised as a ‘dove’ with respect to her stance on monetary policy.

Doves generally favour strategies that bring down unemployment and take a more lenient view of inflation if it means the prospects for employment growth are stronger. Back in 1995, during a debate on inflation targeting, Yellen said: “When the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.”

Hawks, by contrast, tend to view higher interest rates – and the lower levels of employment generated – as a price worth paying for keeping inflation away. For doves, raising interest rates in this way acts as a “blunt instrument,” Yellen explained in a panel discussion in April 2013. Her preference would typically be supervision and regulation as the main line of defence when the country’s economy is weak. However, many believe that she could adopt a more hawkish stance if circumstances required.

The issue is closely tied with numerous aspects of Yellen’s life; she has written about a wide variety of macroeconomic issues but frequently chooses to focus on the causes, mechanisms, and implications of unemployment. Throughout her career, Yellen has also dedicated time to passing on her knowledge. She has taught economics at University of California, Berkeley, Harvard University and the London School of Economics.

Economics saturates her personal life too as Yellen doesn’t have to go far to bounce ideas off a like-minded economist. Yellen and her husband, Nobel Prize-winning economist George Akerlof, are both Keynesian economists. As such, they are said to believe that economic markets are fundamentally flawed and that a certain degree of government intervention is required for them to function correctly. The pair have written numerous papers together, including one focused on why lower wages do not necessarily lead to higher levels of employment.

The majority of focus around the power couple is on their academic achievements – but it is also pertinent to wonder how family life works between a well-respected Nobel Prize winner and the woman responsible for the world’s largest economy. Talking to Time magazine about typical home life commitments, such as doing the dishes or changing nappies, Yellen said: “I think if you counted up how many hours each one of us logged in, (George) certainly gets more than 50%.” Together they have raised a son, Robert Yellen, now in his early thirties. And the apple certainly didn’t fall far from the tree: Robert teaches economics at the University of Warwick in the UK.

Proven track record

Cognisant of the potential flaws in economic markets, Yellen has a proven track record when it comes to spotting trouble brewing. In 2007, for example, Yellen compared housing troubles to a 600-pound gorilla in the corner of the Fed’s meeting room. Around a year later, when the US housing bubble burst, the value of securities tied to the country’s real estate pricing plummeted. This foresight is not isolated: Yellen has consistently made accurate forecasts about the US economy. In fact, her record came out on top of The Wall Street Journal’s examination of 700 predictions made between 2009 and 2012 by 14 Fed policymakers.

In the time prior to her election as head of the central bank, and indicative of the respect she has gained in the industry, commendations about her suitability flooded the news. Professor Andrew Rose from the Haas School of Business, for instance, taught with Yellen at the University of California, Berkeley, said: “She is the most qualified person in the world for this job. The fact that she’s a woman is an additional plus but it’s her suitability as the next Fed Chair that I think people should concentrate on.”

What’s more, Professor Rose and Yellen were in the same room during an earthquake that hit San Francisco in 1989. “We thought the building was going to collapse and I was convinced we were going to die. But Janet just stayed remarkably calm during the whole thing,” he told the BBC in 2013. When it was announced that Yellen would be the new head of the US Federal Reserve, President Obama called her “one of the nation’s foremost economists and policy makers” who was “renowned for her good judgment.”

It is clear to see that her appointment as Chair of the Federal Reserve Board wasn’t simply a means to fill the seat with a woman for the first time, but because Yellen has the experience and aptitude for the job.

Yellen had been second in command to the previous governor, Ben Bernanke, for three years, and many expected a smooth transition due to their similar approaches. Under her instruction, the central bank releases detailed data in order to provide transparent communications for the markets, something Bernanke had always insisted on. Yellen also mirrors Bernanke’s cautious approach when dealing with the public, again using meticulously researched data to minimise ‘surprise’ announcements or releases that could stir the markets. Recently, she has received praise for changing guidance about potential rate raises without spooking investors. Meanwhile, Yellen has also reiterated her commitment to shrinking the country’s ‘too-big-to-fail’ banks and enforcing capital requirements in a defence against potentially irresponsible financial institutions.

The pay factor

Last year marked the first time the Fed revealed how much its top employees take home. Interestingly, Yellen is not the highest paid employee – in fact, she’s paid less than at least 113 other employees. According to Reuters, Yellen earns $201,700 a year as Chair of the Federal Reserve.

Broken glass ceiling

It is clear to see that her appointment as Chair of the Federal Reserve Board wasn’t simply a means to fill the seat with a woman for the first time, but because Yellen has the experience and aptitude for the job. Indeed, this will be extremely useful as the year closes and looking ahead to 2016 – especially as China adds an additional layer of complexity to the already tough decision around when and how to raise interest rates prudently. Although in July this year Yellen said “I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalising monetary policy,” by September, incoming economic data was insufficient to convince the Fed to raise interest rates.

Whilst some market observers support the Fed backing off a raise entirely until there is more evidence that growth is sufficiently strong enough, others are growing impatient at what they believe is the central bank dithering over a decision. The minutes from the Fed’s meeting in July indicated that Yellen had a tough job trying to forge a consensus out of what is quite a divided set of opinions on the Board and, during the September announcement, Yellen mentioned that most members of the Board expect a hike later this year, whilst acknowledging that four don’t. The fact that a 2015 increase was still on the table was stressed, however.

What is clear is that during her two and a half years left in her term as Chair, Yellen’s credentials are something the US will be counting on.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).