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Blog Post | November 23, 2020

JANET YELLEN: What You Need to Know

2020 Election/TransitionFinancial Regulation

Janet Yellen has had a long and distinguished career in the academy and in public service. Like anyone with such a lengthy career, there have been misses along the way. And RDP and other progressives will be sure to speak out in the future should any of them resurface. 

But Yellen’s commitment to fighting unemployment and the conventional wisdom has been the through line of her career. The differences between the worldviews of Janet Yellen and Tim Geithner, President Obama’s first Treasury Secretary, could hardly be starker. 

Yellen follows the Tobin school of monetary policy, which promotes full employment as their primary goal.

  • Yellen studied under economist James Tobin and adopted his theory of monetary policy, which promoted full employment as its primary goal
  • Throughout her career, Yellen has argued that maximum employment was the main goal of the Federal Reserve, and in her 2013 confirmation hearings, she cited high unemployment as her top concern.
  • Under Yellen’s leadership as Federal Reserve chairwoman between 2013 and 2017, the economy created 17 million jobs, and unemployment dropped to 4.1%, the lowest rate in 17 years.

Yellen supports deficit spending to reduce unemployment during economic downturns.

  • Yellen’s academic writings make it clear she supports deficit spending to preserve maximum employment. In a 2004 paper, Yellen defended spending to offset economic downturns, arguing that stabilization spending during recessions made wages higher and unemployment lower. In a 1990 paper, Yellen and co-authors highlighted the phenomenon of “lock-in;” lock-in occurred when people who took jobs during a recession remained ‘locked in’ to lower wages until the economy started to boom.
  • In January 2020, Yellen believed that despite the $23 trillion debt, the United States could increase federal spending or cut taxes in case of an economic downturn. Yellen called for “programs to invest in infrastructure, education, research and development, climate change mitigation” which would elevate potential growth.

Yellen supported continued government stimulus spending during the 2020 COVID-19 pandemic and economic crisis.

  • In July 2020, Yellen opposed a spending cap on COVID-19 relief spending. She argued that “concerns about the deficit and debt [should not] prevent the Congress from responding robustly to this emergency… the top priorities at this time should be protecting our citizens from the pandemic and pursuing a stronger and equitable economic recovery.” 
  • Yellen also argued that during the COVID-19 pandemic and economic crisis, the government should continue to spend on additional financial support to state and local governments. She warned that there could be “massive layoffs in state and local governments” if federal support was withheld because state and local governments did not have the resources necessary to weather the crisis

As Fed Chair, Yellen has made accurate economic predictions and avoids overemphasizing inflation.

  • Yellen downplayed overstated threats of inflation while focusing on the need to address unemployment during her tenure as Fed chair. “A Wall Street Journal analysis of more than 700 predictions that Fed officials made between 2009 and 2012 showed Ms. Yellen had the best record. She warned others that the recovery would be slow and played down the threat of inflation.”

As Fed Chair, Yellen imposed strict penalties on Wells Fargo for their 2016 accounts scandal, sending a warning shot to big banks.

  • Following Wells Fargo’s accounts scandal in 2016, where the bank admitted to creating sham accounts and secretly issuing credit cards to customers without their consent, Yellen imposed a fine of $185 million on the bank.
  • Progressives criticized the Fed’s actions as inadequate, arguing that Yellen’s actions penalized lower-level employees without holding bank executives accountable, and demanded a break-up of Wells Fargo. Wall Street critics, including Elizabeth Warren, called for the Fed to remove the 12 Wells Fargo directors from the time of the accounts scandal.
  • In 2018, during Yellen’s final day as chairwoman, the Federal Reserve imposed harsh and unprecedented penalties on Wells Fargo, including freezing the bank’s growth. As part of the penalties imposed, Wells Fargo committed to replacing four directors from their board of directors.

Yellen consistently calls for further regulations on the banking industry.

  • In 2018, Yellen supported systemic regulations on the financial industry, citing leverage loans as an area of concern that could lead to a future financial crisis if not addressed.
  • In June 2020, Yellen called for a “new Dodd-Frank” following the COVID-19 pandemic and economic crisis that would build up the regulatory power of the Financial Stability Oversight Council.

Yellen believes the Federal Reserve should play a role in reducing economic inequality.

  • In 2014, Yellen highlighted widening economic inequality and questioned whether the growing inequality was “compatible with values rooted in our nation’s history.” In 2018, Yellen argued that full employment, a primary goal of the Federal Reserve, would help reduce inequality.
  • Yellen was a member of the Steering Committee for the Washington Center for Equitable Growth, which supported research on reducing inequality and promoting equitable economic growth.
  • Yellen believed the Federal Reserve could help address some of the structural causes of income inequality by working with community-development organizations and banking organizations to address the needs of low-income communities.

Yellen has defended Dodd-Frank against the Trump Administration’s attempts to dismantle it.

  • In 2017, during the Trump Administration’s attempts to roll back Dodd-Frank, Yellen defended the law and argued that it made the financial system “substantially safer and sounder.”

Yellen has pushed for a greater public policy response to climate change before her Fed successors.

  • In November 2020, Yellen called for “public policy oriented to make a difference on climate change.”
  • In October 2020, Yellen and former Bank of England Governor Mark Carney called for a central bank-like structure to combat climate change without political interference from states’ governments. Yellen and Carney co-chaired the Group of 30 network of former central bankers, academics, policy-makers and financiers to combat climate change. In November 2020, the Federal Reserve requested membership in the Network for Greening the Financial System, a climate network for central banks, and listed climate change as a risk in their biannual financial stability report for the first time,
  • Yellen and Carney also proposed gradually increasing prices on carbon to combat climate change and help transition economies to net zero emissions.

Progressives have praised Yellen’s record as Federal Reserve chairwoman.

  • Center for Economic and Policy Research co-director Dean Baker praised Yellen as a “very effective” chairwoman, crediting her with low unemployment rates and saying she was “very good” on regulation.
  • Co-director of the Fed Up campaign Shawn Sebastian praised Yellen’s tenure as Federal Reserve chairwoman, saying she “held off inflation hawks in order to drive unemployment low in the face of fiscal austerity.”
  • Elizabeth Warren praised Yellen as “one of the most successful Fed chairs in history.”
2020 Election/TransitionFinancial Regulation
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