The Woman Who Broke Into the Fed

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Bloomberg View. Follow him on Twitter at @smihm.
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The jockeying to succeed Ben Bernanke as the chairman of the Federal Reserve Board appears to pit Fed Vice Chairman Janet Yellen against a field that includes former Treasury Secretary Larry Summers and former Vice Chairman Donald Kohn. If Yellen becomes the first woman to hold the post -- despite a few sexist swipes from Summers' supporters -- she'll owe a special debt to Nancy Teeters, who broke the glass ceiling at the Fed when she became the first female member of the board in 1978.

Teeter was nominated in a different era, when the Equal Rights Amendment was under consideration and Jimmy Carter was president. Carter had gone on record as supporting an increase in the number of women and minorities serving in senior posts, so when Arthur Burns stepped down from the board in the spring of 1978, the search began. Filling the vacancy was deemed sufficiently important that Carter put Vice-President Walter Mondale in charge of creating lists of acceptable candidates, anticipating by many years the much-maligned "binders full of women" assembled by Mitt Romney's staff.

"There's a right person out there," one administration insider confided to the press in March 1978, "and we're hoping it's a woman." Fortunately, there were a number of female candidates with impeccable credentials, including Alice Rivlin, who would later become head of the Office of Management and Budget under President Bill Clinton, and served as Fed vice chairman from 1996 to 1999. But Teeters got the call, and with good reason: She had accumulated a wealth of experience working as a staff economist at the Fed, and at the OMB, the Council of Economic Advisers and the Brookings Institution. In 1975, she became the chief economist for the House Budget Committee and an economic adviser to the Carter transition team.

In all these roles she embraced policies that shaped the ideas that would inspire the centrist Democrats who coalesced around Clinton in the 1980s. She emphasized that regulation alone would rarely accomplish political ends; incentives, too, had to play a role in addressing societal woes such as soaring medical costs and environmental pollution. Perhaps most presciently, while defending welfare, she advocated that able-bodied recipients be required to work if possible, another policy that was later embraced by Clinton and the New Democrats.

This pragmatic liberalism made Teeters acceptable to politicians on both sides of both parties, as did the fact that she never ruffled male feathers as one of the few highly visible female economists. She was invariably described in the press as "personable" and "the mother of three," non-threatening qualities that simultaneously underscored her femininity and acceptability.

Little wonder, then, that Teeters encountered little resistance when she appeared before the Senate Banking Committee for confirmation. When Senator William Proxmire introduced her, he told his colleagues he thought it a "disgrace" that a woman had never sat on the Federal Reserve Board in its 65-year history. Teeters was confirmed without a single dissenting vote. Her new job paid $52,500 a year (though double-digit inflation would soon put a dent in her purchasing power).

Indeed, Teeters was walking into an extraordinarily volatile environment at the Fed. When she took office, its chairman, William Miller, had recently been outvoted by inflation hawks eager to raise interest rates. Commentators assumed that Teeters, an old-school liberal who worried as much about the unemployment rate as the inflation rate, would tip the balance away from the monetarists on the Federal Open Market Committee. They had good reason: In her confirmation hearings, she unequivocally declared that "I am not a monetarist, either philosophically or by training."

That put her out of step with the times. Within a year, inflation was raging at 14 percent, and Teeters found herself increasingly at odds with the powerful monetarist contingent on the board. She was, the New York Times reported in the fall of 1978, a "dove among the Fed's hawks." When Miller stepped down the following year, Carter installed Paul Volcker as the new chairman, and the monetarist war on inflation began in earnest, as the board voted repeatedly to raise rates, until the federal funds rate hit a staggering 20 percent in 1980 (it is currently 0.25 percent). By 1981, Teeters was usually the lone dissenting voice against further rate increases. "You don't need to go to 20 or 21 percent the restrain the monetary supply," she said that January.

Teeters lost that battle, but the case she made has supporters: some economists, including Nobel laureate Joseph Stiglitz, have speculated that Volcker inflicted far more pain than necessary in taming soaring prices. Her more lasting legacy, though, was that she left the door open to more women at the Fed. When she stepped down in 1984, the Reagan administration made great efforts to find a woman to replace her. A senior administration official told the New York Times that "a sound, Republican woman with the technical qualifications would be the natural thing to do." Unfortunately, he added, "the good ones don't want the job."

Today, the good ones do want the job. Yellen has played the roles of dove and hawk in her varied career with considerable competence. Like Teeters, she has consistently chosen pragmatism over political purity. As for the fact that the Fed is celebrating its 100th-year anniversary without ever having ben led by a woman? Proxmire's simple statement to the Senate when he introduced Nancy Teeters in 1978 still rings true: "It's about time."

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Stephen Mihm at smihm1@bloomberg.net