By Steven K. Beckner

(MNI) – Only time will tell, but the appointment of Janet Yellen
and two others to the Federal Reserve Board of Governors could prove
momentous.

Yellen, currently president of the Federal Reserve Bank of San
Francisco, will be catapulted into the voting ranks of the Fed’s
interest rate-setting Federal Open Market Committee the moment she
succeeds Don Kohn as vice chairman when he retires on June 23. This
assumes of course that she is confirmed by the U.S. Senate, but that is
virtually a foregone conclusion.

Like her predecessor, Yellen is a highly regarded monetary
economist and like the retiring Kohn, she is sure to wield major
influence on the Board and in turn on the FOMC — particularly in
monetary policy matters.

The articulate and good-natured Yellen’s return to Washington and
to the Board also presumably makes her the odds on favorite to succeed
Ben Bernanke as Fed Chairman when his term expires in 2014, especially
if President Obama is reelected in 2012.

Less certain is the impact of President Obama’s other two nominees
to the Board of Governors: Maryland commissioner of financial regulation
Sarah Raskin and Massachusetts Institute of Technology economist Peter
Diamond.

Neither has much, if any record, on monetary policy. Possibly,
their vote could be swayed by the very persuasive Ms. Yellen.

Significantly, with the nomination and presumed confirmation of
Yellen, Raskin and Diamond, four of seven Board members will be Obama
appointees. (The fourth is Daniel Tarullo). And of course, the Board in
turn constitues seven out of 12 voting positions on the FOMC.

Inevitably, speculation will arise whether these four will
constitute a new voting bloc that will move monetary policy in a more
stimulative direction — or keep rates lower longer than might
otherwise have been the case.

Notwithstanding her protestations to the contrary, Yellen has a
reputation as a “dove” — one who is reputedly more inclined to focus on
promoting jobs than on fighting inflation.

That is probably a bit unfair.

To be sure, in recent years, as the Fed has battled the financial
crisis and recession, Yellen has been vocally supportive of a very
accommodative monetary policy, contending that the economy is
operating far below its potential and that the large amount of resource
slack makes inflation a non-issue for the time being. Indeed, she has
often warned that disinflation might well be the bigger concern.

However, it would be inaccurate and simplistic to characterize
Yellen as an inflationist for all seasons.

As she pointed out to reporters in Los Angeles last month,
she has supported rate hikes 20 times during her career as a Fed
policymaker, which included a previous stint as a Fed governor, which
was followed by service as chairman of President Clinton’s
Council of Economic Advisors.

And in fact, Yellen has spoken in the past of the need to be
symmetrically preemptive in setting interest rates — both in
anticipation of economic weakness and in anticipation of wage-price
pressures.

Following the announcement of her nomination, Yellen said she is
“looking forward to working even more closely with Chairman Bernanke and
the other governors, and continuing to collaborate with my colleagues
throughout the Federal Reserve System to conduct policies that foster
economic prosperity and ensure a stable financial system.”

And she added, “I am strongly committed to pursuing the dual goals
that Congress has assigned us: maximum employment and price stability
and, if confirmed, I will work to ensure that policy promotes job
creation and keeps inflation in check.”

Yellen will no doubt relish her new role and make an important
contribution to monetary policy.

** Market News International **

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