POLITICS: PennAve

Top conservative economists warm to Janet Yellen as possible Federal Reserve chairman

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PennAve,Joseph Lawler,Economy,Federal Reserve,Janet Yellen

Janet Yellen is receiving support for a nomination to be Federal Reserve chairman from some notable Republican economists, including some of the biggest proponents of conservative, anti-inflation monetary policy, despite her Image as a true-blue liberal candidate.

When Larry Summers was the frontrunner, Yellen was widely viewed as the liberal alternative to his candidacy. Many liberal lawmakers and economists endorsed her, many to signal their opposition to Summers.

But now Summers has bowed out of consideration, and Yellen is thought to be President Obama's favorite. And she's getting qualified approval from conservative economists.

Stanford professor John Taylor, the preeminent conservative monetary economist, said on Fox Business that “I’ve been positive ... about Janet Yellen.”

Taylor, who served in George W. Bush's Treasury Department, is best known for the “Taylor Rule,” a guideline for the Fed's interest rate decisions that takes into account inflation and unemployment. He has been a sharp critic of the Fed's management over the past decade, and in particular of the unconventional efforts to ease monetary conditions that Chairman Ben Bernanke has led.

Yet Taylor expressed relative confidence in Yellen’s ability to run the central bank, even though she has helped engineer the recent stimulus programs,

“Ultimately she wants to get back to, I think, a more sensible policy,” Taylor told Fox Business’s Melissa Francis, indicating he has disagreed with Yellen on some of the actions taken during her vice chairmanship at the Fed, adding that “she doesn’t think it’s time [to start scaling back the stimulus] yet — I disagree with that. But at least there’s a sense of where you’re going to go, and I think that’s important.”

Another GOP economic heavyweight, Harvard professor N. Gregory Mankiw, went a step further, and called Yellen “a great economist” and “a real consensus builder” in an interview with CNBC’s Larry Kudlow.

Mankiw, a former top economic adviser to George W. Bush and an adviser to Mitt Romney’s presidential campaign, said it was possible that Yellen could keep money too easy for too long, but “there are enough hawks" on the Fed's monetary policy committee that Yellen will heed their advice.

Yellen, once an economic adviser to President Bill Clinton, is politically left-of-center. Her husband and academic collaborator, the Nobel Prize-winning economist George Akerlof, is more visibly liberal. He's been associated with left-of-center think tanks throughout his career, and was a vocal critic of Bush. In a 2003 interview with Der Spiegel, Akerlof called the Bush administration “the worst government the U.S. has ever had in its more than 200 years” and issued a call of resistance to Bush's “extraordinarily irresponsible” policies, saying, “Now is the time for people to engage in civil disobedience.”

But on the issue of top economic concern to most Republicans, namely, the Fed’s commitment to keeping inflation low, right-leaning economists believe that Yellen is a good candidate — or at least as good a candidate as Obama would nominate.

Some insist that, contrary to the popular perception, Yellen would not hesitate to clamp down on prices if they were to rise (inflation is currently low, at just 1.5 percent in August by the Consumer Price Index. The Fed’s target is 2 percent).

Phillip Swagel, assistant secretary for economic policy in Bush’s Treasury, said “the Image of her that’s sometimes bandied about, that she’s a dove, is a caricature.” Swagel said that not only is Yellen willing to crack down on inflation if necessary, but she also is an “intellectual leader” with the tools necessary to guide the Fed committee that votes on monetary policy decisions.

There is at least one historical instance in which Yellen demonstrated a willingness to forestall runaway inflation.

In September 1996, Yellen, then a member of the Fed’s Board of Governors, approached Chairman Alan Greenspan before a meeting of the Fed’s monetary policy committee, urging him to push for an increase in interest rates to ward off rising inflation.

Lawrence Meyer, another Fed governor, was with Yellen at the time, and recounted the episode in a blog post for Macroeconomic Advisers, the consulting firm for which he now works. Inflation was low at the time, Meyer wrote, and the arch-free marketer Greenspan “just smiled and didn't say a word. After an awkward silence, we said our good-byes. Needless to say, we didn't win this argument.”

Yellen is likely more of an inflation dove than Summers, who has spoken about monetary policy infrequently in the years following the financial crisis and the beginning of the Fed’s unconventional monetary policies. Nevertheless, conservative economists appear to be relatively comfortable with her becoming the world’s top central banker.

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