The Strange Case of Dr. Yellen and Chairman Jay

The two Fed chiefs have turned out to be remarkably similar policymakers

- Jeanna Smialek

Federal Reserve Chairman Jerome Powell has just finished his first year on the job—marking the fifth year of what could be called the Yellen-Powell Fed. Together with predecessor Janet Yellen, Powell has presided over the slowest rate-hiking cycle the U.S. has ever seen. Their patience might just deliver that most elusive of goals of central bankers: bringing a hot economy into a “soft landing,” tamping down nascent inflation while avoiding a recession.

Inheriting a Fed that still had key interest rates near zero, Yellen began to raise them when economic data was strengthening—then paused and pledged restraint at the first sign of trouble. Powell has largely followed her lead. So far, so good. Inflation is hovering at about the Fed’s 2 percent goal, and 13 million Americans have joined the job market since Yellen took office in February 2014. The central bank has coaxed interest rates up to between 2.25 percent and 2.5 percent. And it’s managed to shrink the massive balance sheet of bonds it built up after the financial crisis without sending markets into a tailspin.

Yet the strategy has taken fire from both sides. Yellen was regularly warned that raising interest rates too slowly risked spurring runaway increases in consumer prices. Throughout 2018, President Trump lambasted Powell for tightening too much. Many on Wall Street complained, too.