Janet Yellen Brings A Different Leadership Style To The Fed

Transcript

MELISSA BLOCK, HOST:

The woman leading the Federal Reserve, Janet Yellen, was the first Fed official to acknowledge the U.S. was in recession in 2008. Back then, she was the president of the Federal Reserve Bank of San Francisco. Now in her role as Fed chair, Yellen has made waves with her recent speech about widening income inequality. We're going to talk now about how Janet Yellen may shape Fed policy going forward and for that, I'm joined by Neil Irwin. He's senior economic correspondent with The New York Times. Neil, thanks for coming in.

NEIL IRWIN: Thanks for having me.

BLOCK: And this was a lengthy speech that Janet Yellen gave in Boston this month, all about growing income inequality and an even more unequal distribution of wealth in this country. Let's listen to how she framed the issue.

(SOUNDBITE OF SPEECH)

JANET YELLEN: I think it's appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them, the high-value Americans have traditionally placed on equality of opportunity.

BLOCK: So when Janet Yellen is talking there about American values, what do you think this speech tells us about her economic view and how it might shape her time as Fed chair?

IRWIN: Well, it tells us that she's very much concerned about how this recovery is affecting middle-class, lower income Americans. She's not - you know, like all economists, she's worried about what happens to GDP and the unemployment rate, but it's a sign that she's really particularly concerned about whether the benefits of this expansion really start to accrue to the middle class and poor people. And that talk about distribution is not normally what Fed chairmen do.

BLOCK: Well, it's interesting because critics immediately accused her of being too political. Some called her a partisan hack. Is this really uncharted territory for a Fed chair to venture into?

IRWIN: You know, it is. If you look at a speech that Ben Bernanke gave in 2007 on inequality when he was chairman, he laid out some of the theoretical evidence out there, but basically said this is a political question and not something it would be appropriate for me to weigh in on and really give a strong opinion on.

It's clear Janet Yellen is more concerned about this set of issues. Part of that's her personally - her background - she is the first Democratic appointee to be Fed chair since 1987 when Paul Volcker retired, and this is part of her philosophy. This is how she thinks.

BLOCK: Isn't there an argument, though, Neil, that Fed policy - the policy of quantitative easing, the policy of keeping interest rates near zero - actually serve to deepen income inequality? In other words, people with money - people who could invest - have done very well. People on fixed incomes haven't really benefited.

IRWIN: Yeah, it's a tough thing. Part of what the Federal Reserve has been doing is buying bonds - pumping money into the financial system. And there's a lot of effects of that, but one of the most direct is to prop up asset values. And we've seen this enormous run-up in the stock market and other financial markets over the last five years, and Fed policy is a big part of the reason. Now, if you have a lot of assets - if you have a big stock portfolio, that's great news. If you don't have much in the way of assets - if you're like most Americans and you have maybe a retirement account but not a whole lot in savings, that doesn't directly benefit you.

The question, though, for the Fed is so what you do, you know? Do you use the tool you have to try and make the economy grow or do you sit on your hands? And Janet Yellen and the Fed have been saying we're going to do what we can to try and help the economy grow.

BLOCK: Would there be specific things you would imagine Janet Yellen might be proposing to help - in particular, help with unemployment? I mean, are there specific policies that the Fed could put into place that would have a direct impact on that?

IRWIN: You know, the truth is the tools that the Federal Reserve has are pretty blunt instruments. They can't go in and send money to one state or one labor market or one industry. That's not what they're here for. So for now, Janet Yellen's talk about this is really symbolic and conveying concern rather than something about a policy choice.

BLOCK: Does it indicate anything about where the Fed might be going moving forward?

IRWIN: I don't think so. I think the path is becoming clear. The Fed, just today, they ended their quantitative easing program. They're done with bond buying for now, and they've signaled they're probably going to raise interest rates sometime next year. Now, the big choice for Janet Yellen is when should that day be? Should it be early next year? Should it be delayed even further to 2016 or beyond? And those are the choices that are going to be the defining choices of her early time as Federal Reserve chair.

BLOCK: Janet Yellen was the number two at the Fed for a stretch of time to then chair Ben Bernanke, and you described her, at the time, as her own thinker - her own intellectual force, not Bernanke's emissary. How would you say she diverges from Bernanke, or for that matter, from Alan Greenspan before him, in terms of how she sees the Fed's role and her place within the Fed?

IRWIN: It's funny, you know, analytically, Janet Yellen and Ben Bernanke agreed on a lot. She was a strong supporter of the quantitative easing programs that are really the signature of the Bernanke Fed and his era in charge. That said, they come at these things through slightly different philosophical frameworks. I mean, one piece of evidence - Ben Bernanke was appointed by a Republican, George Bush. Janet Yellen was appointed by a Democrat, Barack Obama. She served in the Clinton White House. He served in - Bernanke served in the Bush White House. They have different philosophical starting points, and they also have temperaments that have a lot of similarities but also some differences. And we're seeing Janet Yellen be willing to go out there and give that speech on inequality and say this is a concern for the U.S. economy and I'm going to use my bully pulpit to state my views on it.

BLOCK: Neil Irwin, thanks again for coming in.

IRWIN: Thank you.

BLOCK: Neil Irwin is senior economic correspondent with The New York Times. Transcript provided by NPR, Copyright NPR.