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Analysis
Yellen’s return to Washington makes Fed monetary panel a ‘dovecote’

Yellen’s return to Washington makes Fed monetary panel a ‘dovecote’

Bernanke gets reinforcements for quantitative easing

by Darrell Delamaide

Fri 8 Oct 2010

The swearing in this week of Janet Yellen as vice chairman of the Federal Reserve Board and Sarah Bloom Raskin as a governor provided some welcome reinforcements for chairman Ben Bernanke and his plans to provide further monetary stimulus to the US economy.

Not a moment too soon, really, since Black Swan author Nassim Nicholas Taleb predicted in Washington last week that the Fed ‘will be gone’ within 25 years. Taleb, who convinced the rest of us that we can’t predict the future because of unexpected ‘black swan’ events, now makes a tidy living predicting the future. His current conceit is to divide the world into ‘fragile’ and ‘robust’ institutions. Guess which category the Fed falls into.

But Bernanke and Yellen presumably have a few good years before their fragile institution disappears, and may act as soon as the November meeting of the Federal Open Market Committee to provide a second round of quantitative easing.

The return of the very dovish Yellen to the Board of Governors – she was there 1994 to 1997 before chairing the Council of Economic Advisers and later heading the San Francisco Federal Reserve Bank – and the addition of a presumably dovish Raskin turn the FOMC into a veritable dovecote. (Hawks, as most readers know, emphasise a hard line on inflation and generally want tighter monetary policy, while doves give equal weight to employment and will countenance looser monetary policy to support job growth.)

According to the helpful ranking kept by JP Morgan Chase economist Michael Feroli, nine of the 11 voting committee members are now centrist (Bernanke, Elizabeth Duke), dove (Yellen, Boston Fed chief Eric Rosengren), or ‘leaning dovish’ (Raskin, Daniel Tarullo, and regional chiefs William Dudley of New York, Sandra Pianalto of Cleveland and James Bullard of St. Louis)

That leaves Fed governor Kevin Warsh (‘leaning hawkish’ according to Feroli), who has voted with the majority in its recent dovish pronouncements, and ‘hawk’ Thomas Hoenig of Kansas City, who has dissented so often he is like the boy crying wolf.


Chicago Fed president Charles Evans, another centrist who is not a voting member of the FOMC this year, left no doubt in an interview with The Wall Street Journal this week that centrists on the panel favour a more accommodative monetary policy.

‘In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should,’ he said. ‘This is a far grimmer forecast than we ought to have. So yes, I’m in favour of more accommodation.’

(The regional Fed chiefs take turns as voting members of the FOMC on a three-year rotation but all them attend the meetings and debate policy.)

Yellen is a well-known quantity after her years of public service and was reportedly the leading candidate to become Fed chairman if President Obama had chosen not to name Bernanke to a second term. A specialist in labour markets, she is married to Nobel Prize-winning economist George Akerlof. The move back to Washington entailed a pay cut. She earned $410,000 a year in San Francisco but will make less than $200,000 as Fed vice chairman.

Sarah Raskin, who was the banking regulator in Maryland prior to her appointment to the Fed, is less well known but provided sufficient clues in her confirmation hearing that she would line up with the doves.

Yellen and Raskin, along with Peter Diamond, were nominated to the board vacancies last April. Though all three were approved by the Senate Banking Committee, Republicans blocked a floor vote on Diamond on the specious grounds that the MIT professor, one of the most accomplished economists of his generation and one of Bernanke’s instructors, doesn’t know enough about economics.

The arrival of Yellen and Raskin brings the number of women on the board to three with ‘Betsy’ Duke, a former commercial banker. There were three women on the board for several months when Yellen’s previous tenure overlapped with that of Alice Rivlin and Susan Phillips.

Darrell Delamaide sits on the OMFIF Board of Contributing Editors. 

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