FRI, FEB 2nd, 2018
Two days ago I was interviewed and quoted by Reuters News regarding the Fed’s January FOMC statement. But the dialogue and policy decisions – or lack thereof – from this rather uneventful meeting was not what I wished to cover. The January meeting was Janet Yellen’s last. It was the end of an era – cut far too short by a man who only made a change because he wanted to place his mark on the Fed – whatever that means. The best person for the job wasn’t what mattered. And make no mistake, Janet Yellen is the best person for this job. Politics. Optics. Ego. Gender. Party. Bravado. It’s the new decision-making paradigm in D.C. and it left Yellen in the cold, out of the running; peculiar given the norm of presidents leaving in place the incumbent Fed chief for a second term even if appointed by a predecessor.
I want to be crystal clear, I am not saying that Jerome Powell won’t be a good Fed chair. In fact I believe that he will conduct – by in large – a very similar path of guiding monetary policy set forth by Ms. Yellen. The pace of interest rates hikes and the metered reduction of the Fed’s balance sheet is likely to persist, both underpinned by a fair and reasoned grading of incoming economic data. Continuity is the right decision. Thankfully she was there to implement this blueprint for others to continue. Nevertheless, Ms. Yellen brought more to the job as our top central banker beyond her economic acumen and experience. She has a steady hand, a deeply thoughtful and objective application of economic knowledge, strong communication (very important for financial markets), and a management style that is both influential and effective – all skills that cannot be taught. She’s a natural leader with a forthrightness that acts like gravity pulling people to lean in, to listen. She’s a true consensus builder. Her knack for preparedness, unparalleled. Her balanced sense of judgment, unmatched.
That’s who Janet Yellen is: exceptionally well qualified for the job, maybe the most qualified Fed chair in history.
And here’s what Janet Yellen has done.
On her watch aggregate spending rose, general confidence improved, household wealth grew (stocks and housing up), balance sheets were repaired, and U.S. banks appear more sound than they’ve been in decades. All told, the economy continued its expansion at a steady and balanced +2.2% annual clip, a pace that was neither too hot nor too cold. Over 10 million new jobs were added allowing unemployment to decline from 6.7% to 4.1%, with near-perfect inflation levels in what amounts to an econ geek’s mic-drop in front of A.W. Phillips.
During the first three years of her tenure, in particular, Ms. Yellen repeatedly found reasons to argue that the Fed should delay raising interest rates, extending the Fed’s stimulus campaign that began under Ben Bernanke. She did this in the face of flawed opinion from critics and increasing pressure from The Beltway that tried to blur the lines between politics and central bank independence. Moreover, Yellen took a serious and careful approach toward the Fed’s supervisory role over large financial institutions … you know, those banks that for the most part caused the financial crisis. By all accounts Mr. Powell will have a much lighter touch here. What’s also remarkable about her tenure, perhaps most consequential, is the point in time where Yellen took the reins. She had a monumental task before her: managing the exit from years of crisis level monetary intervention as a result of the worst recession since the 1930s. If implementing these unorthodox policy tools were groundbreaking, successfully undoing them – putting the toothpaste back in the tube so to speak – was to be exponentially more difficult. This was uncharted territory. It had never been attempted before. And nearly everyone was skeptical.
Recall – after three rounds and nearly six years of extraordinary QE and zero interest rate policy Janet Yellen became chair just as the economy, and the Fed, began to signal that it was time to contemplate a world with less intervention from practitioning monetary theorists. It’s a bit like being a passenger in a race car doing 200 mph through a winding course with no brakes and the driver suddenly tells you to take over the wheel. There’s no procedural guide in this situation. No best practices. The monetary race car was doing 200 mph with no brakes when Yellen took over, and she masterfully stopped the car without a scratch. Interest rates have been raised five times and the balance sheet draw-down program is five months underway. Both huge leaps; both landings perfectly stuck. This “normalization” of monetary policy – once a frightening thought for financial markets – has now been normalized in the investor psyche and all is well as the Fed attempts to now find their neutral policy rate. Meanwhile the economy, bond and stock markets, currency and central bank counterparts alike have all behaved beautifully along the way. It was an enormously complicated and delicate economic concerto – and Yellen proved to be the maestro. Very few have the expertise and delivery to have pulled this off. Ms. Yellen did.
In addition, and as I shared with Reuters this week in my interview and American Banker in the past, Janet Yellen’s impact on shattering the glass ceiling for women in the top leadership role at major central banks is both historic and impossible to overstate. The example she set is virtually flawless, with a rip curl that cuts right through what was once an opposing energy facing gender equality in the field. Along with her supreme work as a policymaker this feat will serve in shaping her legacy as Fed chair, an element to her story that I hope is every bit as enduring as it is significant.
It was four years, but a lifetime of achievements. Arguably at a time when we needed it the most. She was without question the right person at the right moment.
Janet Yellen will begin work Monday as a distinguished fellow at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution in Washington D.C., following in the footsteps of former Fed chair Ben Bernanke and former vice chair Donald Kohn. Outside of us professional money managers and policy wonks, what Yellen accomplished is a quiet and overlooked task. But I see it. I wish her well, and thank her for her service to the economy.
Jason L. Ware, MBA / Chief Investment Officer
Albion Financial Group