Yellen confirmed as Fed chair

The Senate didn’t get much business done yesterday, thanks to travel difficulties from the Great Global Warming Freeze that is now spreading outward from the north. The one piece of business accomplished by the upper chamber was the confirmation of Janet Yellen to replace Ben Bernanke at the Federal Reserve, which didn’t exactly come as a full-throated endorsement:

Eleven Republicans joined Democrats present on Monday in voting to confirm Yellen, who will face more scrutiny than perhaps any central bank leader before her when she formally takes the reins this month from the retiring Ben Bernanke.


Yellen will be in control of an institution that has just begun unwinding years’ worth of unprecedented stimulus for the economy while seeing its regulatory workload explode under the Dodd-Frank financial reform law.

Actually, it’s not unwinding anything. The qualitative easing, which at first came in stages and then became the New Normal, hasn’t stopped at all — it has only slowed slightly.  Calling that “unwinding” is akin to calling a reduction in the rate of federal budget growth a “cut” in spending. To actually unwind that stimulus, the Fed would have to stop its qualitative easing, and then allow the money supply to dwindle back down to pre-QE levels.

Will Yellen do that? I’d guess that it’s not high on her list of priorities. She got picked not to be an innovator, but to be a consistent hand on the rudder after Bernanke exits the Fed. Larry Summers probably would have been a little more innovative, but his candidacy got torpedoed by progressives. Barack Obama needs an activist Fed to counteract the consequences of his economic policies, and the Fed has had little choice but to go along over the last few years. The economy’s real growth remains mired in the mid-2% range (the 4.1% of Q3 GDP was in large part due to inventory expansion), and that’s not enough to encourage the kind of investment that leads to job creation. The Fed keeps pressing QE in order to get some incentive for expansion, and even the “taper” continues to feed that policy. Don’t expect that to change with Yellen.