Yellen to Replace Kohn at Fed?

By Daniel Indiviglio

The Obama administration's pick for the new vice chairperson of the Federal Reserve is said to be current San Francisco Fed President Janet Yellen, according to New York Times sources. Current vice chair Donald Kohn will retire in June. While I'm no expert on Yellen, from what I have read it makes sense that she would be the President's choice.

What type of economist would the administration want? A liberal one. Probably a dove, so to ensure that the economic recovery is put ahead of inflation. The economist should also have some concentration of expertise to deal with a big problem that the U.S. is dealing with right now.

This description fits Yellen perfectly. She teaches at UC Berkeley, is a Keynesian and sat on President Clinton's Council of Economic Advisors. And Paul Krugman likes the idea (liberal: check!). She is widely understood to be a dove. Her specialty? The Times explains:

She has published widely on a variety of macroeconomic topics and is an authority on unemployment.

And what's the chief problem the U.S. economy is currently grappling with? That's right: unemployment. There's little doubt that the Obama administration would absolutely love to have someone with her kind of expertise as the Fed's #2. In fact, some have complained that the Fed currently doesn't care enough about unemployment. This pick directly addresses that criticism.

An added bonus: nominating a woman would bring some gender diversity to the Fed's leadership. There's little doubt that the Obama administration would like that too. There's only one woman currently on the Board of Governors (Elizabeth Duke). I believe she would be only the second woman to serve as vice chair of the Fed.  

If offered would Yellen accept? No word on that, but vice chair of the Fed is a pretty hard position to turn down. The Times notes, however, that her salary would be less than half what she gets as San Francisco Fed president. But the influence she'll wield as vice chairwoman would make up for that.

The only deep experience the Obama administration might like in a pick that I can't find on the various bios I've read about Yellen is with financial regulation. Regulation is clearly a priority for the President, and since the Fed will likely get some more regulatory power in the months to come that knowledge could come in handy. But the administration does have a few more seats to fill at the Fed after they pick a vice chair. So the President could want a dove with unemployment expertise in a higher position and leave the regulatory prowess to the underlings.

This article available online at:

http://www.theatlantic.com/business/archive/2010/03/yellen-to-replace-kohn-at-fed/37406/