Bloomberg News

Yellen’s Ties From London to Shanghai Bypass White House

August 22, 2013

Fed Vice Chairman Janet Yellen

While Janet Yellen, vice chairman of the U.S. Federal Reserve, has spent her years in Washington deepening her ties to the Fed’s regional presidents, she has devoted comparatively little time to building political relationships. Photographer: Pete Marovich/Bloomberg

Janet Yellen as Federal Reserve vice chairman has spent time building relationships across the Fed’s regional banks and with central bankers from Shanghai to London to Mexico City -- everywhere except the corridors of power in Washington.

Yellen’s calendars, obtained under the Freedom of Information Act, show more than 90 meetings by phone or in person with Fed district bank presidents in 2011 and 2012, a period during which she made visits to the Federal Reserve Banks of Boston, New York, Philadelphia, Atlanta, Cleveland, Chicago, Minneapolis and San Francisco. By contrast, she visited the White House once and Capitol Hill twice.

Supporters of Yellen, 67, are seeking to keep her in contention along with Lawrence Summers to succeed Fed Chairman Ben S. Bernanke. Summers, a former Treasury secretary and White House economic adviser, has regular contacts with White House officials and in recent months has been in touch with senators who will vote on the Fed nominee.

“Almost every political adviser you see in the White House organization chart has had some experience with Larry Summers,” said Vincent Reinhart, a former top adviser to Bernanke and Alan Greenspan and now the chief U.S. economist for Morgan Stanley. “That’s not true for Janet Yellen.”

Yellen’s Breakfasts

When the Federal Open Market Committee gathers in Washington for monetary policy decisions, Yellen often has breakfast with one district bank president, then sits down with another, before the meeting starts in the morning. That familiarity with her colleagues would likely make her an adept manager of the central bank, said Robert Eisenbeis, a former Atlanta Fed research director.

“She’s steeped in the culture,” said Eisenbeis, now chief monetary economist at Cumberland Advisors in Sarasota, Florida. “Nobody understands the culture from the many perspectives that she’s had.”

While Yellen has spent her years in Washington deepening her ties to the Fed’s regional presidents, she has devoted comparatively little time to building political relationships. In 2011 and 2012 her calendar shows meetings with only two members of Congress -- Senator Pat Toomey, a Pennsylvania Republican on the Banking Committee, and Representative Dave Schweikert, a Republican from Arizona, according to her calendars, which run through January of 2013. Yellen declined to comment.

Fed’s Independence

“Given that she’s currently vice chair of the Fed, she would have to be very careful” in her interactions with Congress and the White House, said Michael Hanson, a former Fed economist who is now senior U.S. economist for Bank of America Corp. in New York. “The Fed is adamant about protecting its independence these days.”

That hasn’t kept many senators from getting to know and admire Yellen through speeches in which she advocates focusing on reducing unemployment.

“Janet Yellen has impressed people on the Hill with her intelligence, diligence, and her focus on bringing down unemployment and getting people back on the job,” said Martina McLennan, a spokeswoman for Senator Jeff Merkley, a Democrat from Oregon.

Merkley was among the one-third of the 54-member Senate Democratic caucus who signed a letter praising Yellen and recommending President Barack Obama pick her to succeed Bernanke.

Senators’ Letter

While the letter mentions no other candidates by name, it was circulated after Summers, 58, emerged as a contender.

“By identifying all the reasons he should go for Yellen it implicitly undercuts support for Summers,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington who studies the relationship between the Fed and Congress. “The letter made a point by not making a point.”

The letter may do little to dissuade Obama, Binder said. “It seems that she’s not in the orbit of what the White House is looking for.”

Summers, the director of the White House National Economic Council at the beginning of Obama’s presidency, was also a tennis partner of the president and other top economic advisers. His White House ties were forged when Summers provided the analysis that led to the successful bailout of automaker Chrysler Group LLC, now majority-owned by Fiat SpA.

Summers led daily economic briefings in the Oval Office and was the person Obama turned to for updates on a range of issues in the financial crisis, including the auto bailouts, the $830 billion economic stimulus package, housing and financial regulation.

Visitor Logs

Secret Service visitor logs show Summers had at least 10 meetings at the White House since leaving the administration at the end of 2010. At least four of the meetings listed were with the president in the Oval Office.

Yellen has been to the White House only once in the two years through January, according to White House visitor logs and her calendar. In November 2011 she joined Bernanke and Council of Economic Advisers Chairman Alan Krueger for lunch at the White House mess.

In January of 2012 she began attending a monthly luncheon with the Council of Economic Advisers. Otherwise, her calendar shows little contact with officials close to the president: a goodbye reception for Austan Goolsbee when he left CEA in 2011 and two meetings with Treasury Secretary Timothy F. Geithner. Krueger, Goolsbee and Geithner have all since left the administration.

Familiar Overseas

Yellen is more familiar to many policy makers overseas. During her stint as Fed vice chairman she maintained a busy international travel schedule, flying to meetings of regulators and central bankers in London, Paris, Zurich, Basel, Bern, Helsinki, Mexico City, Tokyo and Shanghai.

“I have known Janet for some years,” South African Reserve Bank Governor Gill Marcus said in Johannesburg on Aug. 13. “When Janet talks, you can hear a pin drop. She is methodical, analytical. And there is absolutely no reason she shouldn’t be considered.”

As Fed vice chairman, Yellen’s attentiveness to the district Fed presidents proved invaluable in building consensus on policy issues.

She took control of a subcommittee focused on the Fed’s communication challenges. For years, policy makers on the FOMC had been unable to agree to holding press conferences or spelling out goals for inflation and unemployment.

Yellen’s Subcommittee

Yellen’s subcommittee met almost as often as the FOMC -- 15 times in person and via telephone in 2011 and 2012 -- according to her calendars. The meetings culminated in a breakthrough in policy: A January 2012 statement that committed the central bank to achieving inflation of 2 percent in the longer term and spelled out a goal of 5.2 percent to 6 percent for the unemployment rate. The Fed’s regional presidents, eight of whom hold Ph.D. degrees in economics, agreed unanimously to adopt the statement.

It was a vindication of Yellen’s stance in almost 20 years of internal disagreement over the Fed’s longer-run goals. In January 1995, then-Fed chairman Greenspan arranged a debate between Yellen and Richmond Fed President Al Broaddus, with Broaddus arguing that the Fed should announce an explicit inflation target, while Yellen advocated an approach that considers both sides -- stable prices and maximum employment -- of the dual mandate.

Effective Participant

Even during her early days at the Fed, Yellen was “the most effective participant at the FOMC table,” said Robert Parry, her predecessor as president of the San Francisco Fed, who served on the FOMC when Yellen was a Fed governor from 1994 to 1997.

“There was no one that I think made comments that were more helpful than her,” Parry said. “Every time she made a presentation, she really made me think. Sometimes I had different views on the issues, but I always appreciated her perspective.”

Her ability to persuade academics was honed at the University of California-Berkeley, where she was a professor from 1980 to 1994 before moving to Washington to serve as a Fed governor, and again from 1999 to 2004 before becoming president of the San Francisco Fed.

“She has a very low-key, insistent way of doing things, which is really important as a Fed chair, because there’s a huge divergence of views,” said Andrew Rose, a professor at Berkeley since 1986. “You’ve got to get unanimity of purpose.”

Human Element

Mary C. Daly, senior vice president at the San Francisco Fed, said Yellen asked questions underscoring the “human element” of a problem.

“She didn’t just come in and say, ‘I would like to know if you think we’re likely to have a jobless recovery,’ ” said Daly, who has worked as an economist at the district bank since 1996. “What she would say is, ‘Millions of people have lost their jobs. To what extent do you think those millions of people can’t come back to the labor market? What are they going to do for a living? How are they going to support themselves?’ That inspires people to dig deeply” into research.

Broaddus, whom Yellen debated in the 1990s, said she is the most experienced candidate he can imagine for the job.

“She’s very smart, she’s been a governor, president of the San Francisco Fed, vice chair,” said Broaddus. “She could still be at Berkeley and she’d be prominent.”

Opposites United

Yellen’s subcommittee work was able to unite two presidents with almost polar opposite views to support the same inflation and unemployment goals: Chicago Fed President Charles Evans, among the most vocal advocates for additional easing from the Fed, and Philadelphia Fed President Charles Plosser, one of the most unyielding internal opponents of Fed stimulus.

Her record for consensus isn’t perfect. Governor Daniel Tarullo, Obama’s first appointment to the Fed board and the official who has led the central bank’s regulatory efforts, refused to go along with Yellen.

When the FOMC voted to adopt the statement of goals in January 2012, Tarullo abstained because he “questioned the ultimate usefulness of the statement.” In January 2013 he abstained from a decision to renew the statement.

Consensus Forecast

Yellen’s panel also worked from at least June of 2012 to January of 2013 at an attempt to develop a consensus forecast that would provide a better baseline of how the FOMC would react to incoming economic data. The effort foundered as the views of FOMC members proved too diverse to encapsulate in a single forecast.

Her stature among her colleagues has grown over the years, New York Fed President William C. Dudley said in a May interview with Bloomberg Television. “I have tremendous respect for her ability. She is bright. She is tough. She is determined. She’s brave. These are all the qualities that I think a Fed chairman should have.”

In the end, though, that may not be what matters most.

“There are enough people who will vouch for Janet Yellen,” Reinhart said. “The problem is they’re not in the inner circle.”

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Aki Ito in San Francisco at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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