Janet Yellen: a Fed veteran ready to take the wheel at the Treasury

Janet Yellen, the woman widely expected to be the next US Treasury secretary, likes to tell the story of her interest in economics by harking back to her childhood in Bay Ridge, Brooklyn. Her mother, Anna, was a teacher and her father, Julius, was a doctor who worked out of the family home, taking care of many working-class patients in their neighbourhood of European immigrants.

“I heard very often when I was growing up what it meant to family life when someone lost a job,” Ms Yellen told her audience at an event in Texas last year. The power of those experiences of economic struggle would eventually propel Ms Yellen, now 74 years old, to become one of the most successful labour market economists of her generation and, between 2014 and 2018, the first woman to chair the US Federal Reserve.

Now president-elect Joe Biden is likely to propel her to the top cabinet post overseeing the world’s largest economy and US financial markets. Ms Yellen would be the first woman to hold the job. Given her record, Ms Yellen’s qualifications to lead the Treasury in the post-Donald Trump world are not in doubt. But officials who have crossed paths with her say she also brings a human touch to her decisions — a trait much needed with the pandemic-battered economy.

“She is a very broad-minded person, in the sense that she understands many dimensions of the overall reality. She understands the economics, she understands the politics, she has empathy and she has a deep understanding of the social problems,” says Mario Draghi, the former president of the European Central Bank. “It’s very, very rare to find that combination.”

Ms Yellen’s brainy side shone early on. She was top of her class and editor of the newspaper at Fort Hamilton High School — in one edition she conducted a witty interview with herself. After quipping that “Janet” was a “versatile, attractive, talented senior”, she laid out her hobbies and passions. Among them were mineralogy and travel, but also: “riding the 69 St Ferry, exploring New York City and reading philosophy so that I can write unpopular essays”.

At Brown University she fell in “love at first sight” with economics, and at Yale she earned a doctoral degree under James Tobin, a master of Keynesianism. She became an assistant professor at Harvard when female economists were not just few but often discriminated against. She was denied tenure. Ditching academia for her first job on the Fed staff, in the autumn of 1977 she met economist George Akerlof in the central bank’s cafeteria. He soon became her husband and, later, a Nobel laureate.

“Not only did our personalities mesh perfectly, but we have also always been in all but perfect agreement about macroeconomics,” Mr Akerlof once wrote. “Our lone disagreement is that she is a bit more supportive of free trade than I.”

The pair have one son, who is also an economist. They published economic papers together, including important work on how higher salaries boost productivity by increasing worker motivation. “Janet has always had a very granular focus on the labour market,” says Maurice Obstfeld, a former IMF chief economist and a professor at the University of California, Berkeley, where Ms Yellen joined the faculty in 1980. Given the pandemic, “she’s going to be very good at focusing on the disaggregated picture of which workers are doing relatively well and which are really suffering”, he said.

Ms Yellen returned to the Fed as a governor in 1994, nominated by then president Bill Clinton, and quickly made a mark. “She would come up with the question or the observation that . . . cut to the heart of the matter — as often as not she found a hole in the argument,” says Donald Kohn, the former Fed vice-chair and a senior staffer at the time.

After chairing Mr Clinton’s council of economic advisers, Ms Yellen became San Francisco Fed president, sounding some early warnings about the housing bubble. She returned to the Fed board as vice-chair and chair in the aftermath of the 2008 financial crisis. Known for always being prepared, armed with thick binders and logic, she did not shoot from the hip. Instead she thought in “shades of grey and nuance and texture”, says a former Fed official.

Ms Yellen’s big challenge was to start unwinding the Fed’s crisis interventions, including a 2015 move to start increasing interest rates. She also tried to open up the Fed, consider the effects of structural inequality and embrace diversity. “She wants to hear voices . . . She makes people feel included in her deliberations,” says Claudia Sahm, who worked under Ms Yellen.

In private, Ms Yellen is a lover of high quality food and has a jovial streak. “Not only does she have a good sense of humour in the sense that she’s very funny, but she just loves laughing at other people’s jokes,” says Mr Obstfeld. “When something tickles her she will literally laugh until she cries.”

Since leaving the Fed, Ms Yellen has been a fellow at the Brookings Institution think-tank in Washington, giving her more latitude to speak her mind — and she now has a chance to show what can be accomplished when a central banker grabs the political wheel.

But Laura Tyson, the UC Berkeley professor and former White House official who championed Ms Yellen’s move to Washington in the 1990s, says neither the “power” nor the “kudos” of the Treasury job is driving her. “She is doing it to serve the public, through the tools she has to understand economic issues.”

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