Janet Yellen Primed to Tackle Unemployment and Congress

The unemployment rate has fallen to 6.7 percent, mostly because Americans are dropping out of the workforce all together. What will Yellen do?

Janet Yellen, who began her tenure as chair of the Federal Reserve on Monday, is a progressive economist. She's more concerned with unemployment than inflation, and her first big decision in office will be a chance to put her beliefs into action. The unemployment rate has fallen to 6.7 percent, mostly because Americans are dropping out of the workforce all together. What will Yellen do?

Previously, Fed leaders said they'd consider raising short-term interest rates once the unemployment rate hits 6.5 percent. Yellen probably won't do that. As The Wall Street Journal reports, Yellen "and other Fed officials worry [the lowered unemployment rate] masks large pockets of stress still plaguing the labor market, including millions of people who want work but aren't looking anymore and therefore are no longer counted as unemployed." If Yellen decides to start lifting short-term interest rates too soon, she could squash the ongoing recovery. If she waits too long, she risks fueling high inflation. Given Yellen's past statements, it seems likely that the Fed will wait to raise rates, even if the unemployment rate reaches 6.5 percent in January's job report, expected this Friday.

In a speech to the AFL-CIO last February, Yellen remarked,

These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families. The toll is simply terrible on the mental and physical health of workers.

The fact that the long-term unemployed recently lost federal benefits certainly isn't convincing the jobless to keep looking for work. Yellen will have to decide when it's time to raise interest rates and at what level of recovery people might start looking for work again. As Politico notes, Yellen has never dissented when the Fed's decided to raise interest rates before, so it's unlikely that her decision will be radical.

But before Yellen can lead, she'll have to listen to Congress. On February 11 and 13, she'll be grilled by the House Financial Services Committee and the Senate Banking Committee about whatever lawmakers feel like bringing up. While Yellen sailed through confirmation, plenty of Republicans are skeptical of her progressive background and the Fed in general. Sen. Rand Paul, for example, wants to "audit the Fed." Republicans on the House committee promise a centennial "review" of the Fed this year.

Regardless of these challenges, Yellen seems prepared to take on policy changes and Congress. Jim Adams, an old friend of Yellen's and a professor at the University of Michigan, told Politico that the new Fed chair is "comfortable in her own skin." He continued,

She’s not one of these people for whom the press will be an annoyance, for whom Congress will be an annoyance. She’s not going to be the kind of person who, either out of egomania or out of shrinking violet-ness, will have all kinds gaffes in her statements.