What Janet Yellen Will Bring to the Fed

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Oct. 9 (Bloomberg) –- Former Federal Reserve Board Senior Adviser Stephen Oliner and Brookings Institution Senior Fellow Justin Wolfers discuss President Obama’s nomination of Janet Yellen for Fed Chair. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Steve olinger, explained a little bit about the balance sheet of the federal reserve and what janet yellen will mean to the expansion or contraction of the balance sheet.

Of course, the balance sheet has expanded dramatically over the past several years.

The fed has been considering whether time has come to slow the purchases that they have been making of both mortgage backed securities and treasuries.

Janet has been an important proponent of using the balance sheet to provide support for the economy, and that point of view carried the day in the september meeting where the fmoc decided to continue the purchases unabated.

My guess is they are going to continue with purchases for a while to come, because they are looking for improvement in the economy, faster growth, a notable improvement in the east of finding jobs, and the evidence of that has been lacking.

Justin, come in on what the federal reserve will look like under janet yellen.

Will it be much different than what we have experienced under ben bernanke?

I think the important part where we are going to see continuity is the fed's main policy instrument over recent months has been promises.

They have promised to keep future interest rates low, so- called forward guidance.

Genet was a chief architect of that policy.

She was at the fed when those policies were instituted.

There is every zero -- every reason to think that there will be continuity.

There will sure be differences.

Janet is someone who takes both parts of the dual mandate absolutely seriously.

There have been times when bernanke has allowed himself to be buffeted by political pressures.

The hard money folks who are worried about inflation, they say it everywhere, but it is not in the data.

Janet is someone who will stand up to that.

I hope she continues doing so.

Steve olin are, the composition of the federal reserve board of governors is also going to change under the potential chairmanship of janet yellen.

What would that mean for monetary policy?

Well i think, as you said, there could be dramatic turnover on the board over the next couple of years.

It is possible that a year from now janet might be the only remaining board member among the people who are curtly serving.

So, it will be a veritably -- a very inexperienced board.

Her leadership is going to be extremely important in developing policies for the fmoc.

Justin, what can you tell us about janet yellen as an individual, as a person?

What is she like?

Janet is tremendously warm.

She is very human.

She is humble.

She will look you in the eye and tell you what she thinks.

She is someone for whom economics is a calling.

Too often, economists are called to it because they see it as a technocratic pursuit.

Genet really understands the economy in the everyday lives that you and i live.

She sees that policy policy -- public policy institutions like the fed have a real ability, indeed obligation, to makes -- to make those lives a little better if they can.

Stephen, you talked about employment is one of the two dual mandates of the federal reserve.

What do think janet yellen's position is on full employment and that target of 6.5% unemployment?

Well, the 6.5% number is just a threshold for the fmoc to start talking about whether they should start to raise the federal funds rate.

She has been an advocate of the view that monetary policy needs to remain accommodative for substantial periods of time in order to get the unemployment rate down to near equilibrium level, which most economists believe is somewhere between 5% and 6%. the 6.5% number is just a trigger for a conversation on the fmoc, a serious conversation about raising the funds rate.

I think all the indications coming out of the fmoc recently are that they would continue to keep the funds rate at the zero bound for a substantial period of time after the unemployment rate hits 6.5%. justin, you have known janet yellen and her husband the nobel economics laureate for more than a decade.

How did you come into contact with them, and what can you tell us about your relationship?

I was just a young economics phd student.

I was out on the circuit presented my research out and about.

George and janet were already giants in the profession.

To have the opportunity in conferences to meet with them or go out to dinner or get to know them a little better, they are refreshingly frank.

Entirely honest.

Both have a wonderful sense of humor.

They really have mentor to young economists throughout the profession and continue to have an important impact in bringing up the next generation of new economists and policymakers.

Stephen, one of the things that happened -- that has to happen before janet yellen becomes the chairman of the federal reserve is she has to be confirmed by the senate.

What is the likely politicking that is going to go on?

I think she is going to be confirmed.

I don't know exactly how big the margin will be, whether it's going to be 70 votes for her or 80 votes for her or 90 votes, but she is going to be confirmed.

On the republican side, there are going to be questions about the policies that she would implement if she were fed chair, and in particular, about her tolerance for inflation.

She is widely seen as someone who is more tolerant of inflation than some of the other members of the committee.

I think that is actually a complete misread of her views.

I think she has no more tolerance for inflation than even the hawkish members of the committee.

She just sees the chief problem facing the economy right now as woefully poor employment, a woefully poor implement situation with very quite inflation.

Given that analysis of the situation, she is an advocate of accommodative monetary policies, but if the situation were different, she wouldn't hesitate to tighten policy.

I want to thank you gentlemen very much.

A bloomberg view columnist dustin will first and stephen

This text has been automatically generated. It may not be 100% accurate.

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