Home > News > What the New Fed Chair Means for You

Comments 0 Comments

The running joke about economists is that they equivocate on every question, answering always with a phrase like, “On the one hand….but on the other hand.”  So it’s only fitting that a story about the impact of Janet Yellen’s confirmation as Chairwoman of the Federal Reserve on Monday follows this time-tested formula. On the one hand, things won’t change much from Ben Bernanke’s reign. On the other hand, she’s quite possibly a revolutionary figure.

The first job of any new Fed chair is to avoid spooking the stock market; she’s already accomplished that. Wall Street has largely cheered her selection, and cheered even more during her November nomination hearings, when she pledged allegiance to Bernanke’s monetary policy.  After all, she spent three years as Bernanke’s No. 2.  Traders hate surprises; clearly they liked the Yellen choice. So, on the one hand, expect a smooth transition and little change at the helm of the economy.

But on the other hand, Yellen, 67, is the first of her kind in many ways to run the Fed — the list only begins with her being the first woman in the job. Given her past positions, it’d be shocking if she doesn’t stir the pot after she takes charge Feb. 1.

A New View of the Economy?

A quick read of Yellen’s academic work shows she is the first Fed chair to really embrace a relatively new field of behavioral economics, which melds psychology and old-world econ. Classical economists have long snickered at the behaviorists, so Yellen’s role atop the financial world is a bit of revenge for the newbies.

To consumers, that means Yellen will almost certainly be more sympathetic to real-world issues than traditional economists, such as the pain and suffering caused by boom-and-bust cycles. In an early paper, she argued against traditional ideas that booms and busts are natural and balance each other. She has also taken positions that workers might cheer, composing an elegant argument that companies profit from paying workers more – underpaid workers underperform, the paper says. She penned a pro-consumer paper explaining that bundling of services often works to the advantage of sellers, deceiving buyers about the real price of things. Consumers frustrated by high cable TV prices or unfair costs of printer ink would probably find an ally in her logic. She even wrote a paper about the problems of advertising – how it empowers monopolies, how it creates unhealthy demands, and generally how it distorts an economy.

Meanwhile, Yellen was born in Brooklyn, but she did not ride the usual New York-Washington D.C. shuttle. She spent six years running the San Francisco Fed, far from Wall Street, and has no obvious allegiance to stock marketeers.

When Yellen Steps Up

Observers say Yellen, while an avid consumer of data, shows more human concern for unemployment than other economists, who tend to think about such statistics in abstract ways. Indeed, while abiding by the oft-repeated mantra that the Fed’s dual job is to control inflation and unemployment, she’s already said that she’s more concerned about America’s long-term unemployment than short-term inflation increases. She’s expected to use the bully pulpit of the Fed to argue for a higher minimum wage, for example.

None of this will be apparent at the beginning of Yellen’s term, when she will be dealing with a hot potato — winding down the Fed’s quantitative easing policy, which has seen the U.S. government buying securities by the billions to prop up market prices. QE, as it’s known, was instituted after interest rates were dropped near zero as a last-resort method for stimulating the economy. Observers have long warned that the years of easy money has set the U.S. up for high inflation in the future. Unwinding these policies began in December, when the Fed announced it would slowly begin buying fewer securities. Yellen’s job will be to execute a soft landing…ease off the purchasing, and perhaps slowly raise rates, while keeping Wall Street happy on the one hand (here we go again) and stemming inflation the other. And she’ll be doing that in a more hostile environment than any Fed chair in recent memory — she received fewer confirmation votes on Monday than Bernanke or Greenspan, and Congress is vowing to push forward with efforts to gain more oversight of the Fed.

Meanwhile, Yellen has argued for more oversight of Wall Street and of banks, worrying publicly several times in recent years that reform hasn’t gone far enough. On the one hand, you’d think that Wall Street would be worried; but on the other hand, have you seen the Dow lately?

More Money-Saving Reads:

Image: Willard

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team