Janet Yellen And The Role Of The Fed

Yesterday the Senate confirmed Janet L. Yellen as the new chairwoman of the Federal Reserve Board. Yellen was confirmed by a 56-26 margin, as the sour winter weather apparently kept many Senators from the Capitol for the vote.

Yellen, 67, has an impressive resume. She is a graduate of Brown, received her Ph.D in economics from Yale, and taught at Harvard, the London School of Economics, and later at Cal Berkeley, so she has the Ivy League and academic roots that Fed followers respect. She has worked at the Fed as an economist, was first appointed to the Fed in 1994, served as chair of the Council of Economic Advisers under President Clinton, then headed the San Francisco branch of the Fed. She also has been intimately involved in setting Fed policy in response to the housing bubble, the long recession, and what she accurately foresaw as a “jobless recovery.”

The interesting thing about Yellen’s nomination is not that she was chosen or confirmed, but rather that her confirmation battle provoked criticism of the Fed from the right and left. Some Senators criticize the Fed for not doing enough to promote employment, economic growth, and the middle class, and others fault the Fed for doing too much, with its aggressive bond-buying program and decisions to keep interest rates at historic lows — moves that clearly have helped the stock market, but could provoke a tumble when those policies come to an end, as they inevitably must.

In my view, the criticism of the Fed is part of a growing problem in our country. Instead of members of Congress making decisions on how to deal with the economy, they expect the Fed to address the issues for them. The Fed acts as a nearly autonomous agency, with members who are not chosen by popular election deliberating in secret and making decisions that are described by carefully scripted statements. The Fed’s increasingly central role has made it a kind of fourth branch of government that manages the economy — and also makes it a convenient whipping boy for politicians across the political spectrum, who can blame the Fed when the economy doesn’t operate at peak efficiency.

It’s another, sad example of how representative government is shrinking and the power of administrative agencies that are not directly accountable to the people is growing. It’s not a positive trend, and we need to do something about it.

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