Janet Yellen and the Volcano

By Vicki Schmelzer

I met Janet Yellen for the first time at a New York Stock Exchange (NYSE) event for reporters in the late 2000s. At the time, Yellen was the president of the San Francisco Fed.??We shook hands and spoke for a few minutes before her assistant moved her on to other attendees.??I remember her pearls and her Brooklyn accent.??

Yellen was not the first female Fed president. Karen Horn became the Cleveland Fed President in 1982?(https://www.federalreservehistory.org/people/karen-n-horn). Fed history notes that Horn was the first woman president in the Federal Reserve System’s sixty-nine year history. Nancy Teeters should also be mentioned as the first woman to serve on the Board of Governors (1978-1984).?

I mentioned these women, Yellen included, as she was an economist for the Board of Governors in the late 1970s, because these were my role models as I started my banking career.??I was initially a management trainee at Dresdner Bank and after a year, began working on Dresdner’s currency desk. A few years later, I moved on to Citibank, where I traded forward currencies.??

The Citibank dealing room of the mid 1980s was especially enlightened in terms of diversity of sex, race and ethnicity. It was like working on the Starship Enterprise, where people had jobs to do and there was no time to think about male/female/black/white/Hispanic/Asian. It was an amazing place to work.?

At the same time, it was clear to most female traders in the industry that we were the exception, not the rule.

Only a very few women managed to become chief dealers and to run dealing rooms. At every event, a typical round table of 8 had 1 woman and 7 men. My female trader friends were told that their voices were “too high” and that they would not receive or would receive reduced earned bonuses because they weren’t married and didn’t need to support families. In interviews, they were asked about plans to have children. Forget about #MeToo, every female I knew in the industry had stories to tell and they weren’t pretty.?

Most importantly, we seemed to be judged by a different set of rules as male traders and that never seemed quite fair to us.?

That brings me back to Janet Yellen, who over the years worked as a professor, served on the Federal Reserve Board of Governors and chaired the Council of Economic Advisors. Later, she served as president of the San Francisco Fed from 2004 to 2010 and as Fed vice chair from 2010-2014 before becoming the first female Fed chair in Federal Reserve history in 2014.?

During these years, I had morphed from currency trading to financial journalism. When I went out to cover central bank heads and government officials, again there were round tables of 8 at events, but this time there were 2 women for every 6 men.??There were more women on economic panels and on the Federal Reserve Board of Governors. What progress.?

You can argue that Janet Yellen was at the wrong place at the wrong time when she was not asked by the Trump administration in 2018 to continue at the Fed helm. That she was an Obama pick and not a Trump pick clearly played a role, but as a woman I had to also wonder if the “different set of rules” notion again was in play.??With these thoughts whirling in the back corner of my brain, I was thrilled to see Yellen chosen to be the first female U.S. Treasury Secretary in January 2021.?

Fast forward to this week, when New York Times columnist Bret Stephens (story “Mike Pence Was of Two Minds”) said President Biden?“should fire Janet Yellen, preferably this week, and replace her with Larry Summers. It would create a sense of accountability and put energy in the executive, as Alexander Hamilton might have said.” His colleague on “The Conversation,” Gail Collins, offered up “I don’t blame Yellen for our economic mess, although I’d sadly sacrifice her if it would move us forward.”

They are not the only pundits calling for Yellen to be tossed into the volcano for the greater good. All because her crystal ball in early 2021 did not tell her that COVID-19 related supply chain issues would not easily be resolved and that Russia would invade Ukraine.?

In an ABC “This Week” interview in March 2021, she said, “Is there a risk of inflation? I think there's a small risk. And I think it's manageable. Prices fell a lot last spring, when the pandemic surged. I expect some of those prices to move up again, as the economy recovers the spring and summer. But that's a temporary movement in prices.”

A few months later in May 2021, with the U.S. economy still doing well and the stock market rising, in comments at The Atlantic’s Economy Summit, she noted, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”

Market reaction was fierce and Yellen had to walk back her comments about interest rate hikes at the Wall Street Journal’s CEO Council Summit, saying “so let me be clear: That is not something I’m predicting or recommending.”

During the second half of 2021, the U.S. and other countries had to deal with the new Delta and Omicron strains of COVID-19.??Just when Omicron cases and deaths seemed to be peaking, Russia invaded Ukraine in late February 2022.??Oil prices skyrocketed, dragging gasoline prices higher. China began new lockdowns as Omicron spread.?

Anyone at the start of the year who thought inflation might be tamed in 2022 had to do a rethink and that is exactly what Janet Yellen did.??Like any good economist, she reassessed the economic landscape given the new variables.?

In a CNN interview in late May 2022, Yellen admitted, “Well I think I was wrong then about the path that inflation would take.??As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that at the time I didn’t fully understand.”

More recently on June 7, in remarks to the Senate Finance Committee, Yellen said, “There’s no question that we have huge inflation pressures. That inflation is really our top economic problem at this point and it’s critical that we address it, so I do expect inflation to remain high although I very much hope that it will be coming down now.”

Do we want a Treasury Secretary with an imaginary all seeing and knowing crystal ball or do we want one who can reevaluate the situation when circumstances change???I hope and pray that the Biden Administration does not get swayed by those calling for Yellen to be sacrificed.?

And before deciding that Larry Summers would do a much better job, Yellen naysayers should read a Sept. 13, 2013 article in The Atlantic, “The Comprehensive Case Against Larry Summers” (https://www.theatlantic.com/business/archive/2013/09/the-comprehensive-case-against-larry-summers/279651/) which outlines his good and bad points and explains why he should not be at the head of the Federal Reserve.?

I’m in there rooting for you Janet!

Vicki Schmelzer?