Will Janet Yellen be the First Modern Fed Chair Without Recession?

The three Fed chairmen prior to Janet Yellen all presided over recessions.  The crazy thing is that the last four Fed chairs date back to 1979.

There have only been a total of 18 Fed chairs dating back to 1914 when operations began.

Paul Volcker took over in August 1979 when consumer price inflation and interest rates were both in the double digits.  He presided over recessions in 1980, 1981, and 1982 (arguably one recession).  Volcker was brought in by Jimmy Carter to save the dollar.  He saved the dollar and ruined any chance Carter had of being reelected.  Volcker halted monetary inflation and allowed interest rates to float higher.  This is what led to the recession or recessions of the early 1980s.  This was the correct policy.  It was probably the last time that a good cleansing of the malinvestment was allowed to take place.

Volcker eventually did preside over some monetary inflation, but he was a relatively good Fed chairman if such a thing exists.

Alan Greenspan took over in 1987 and a market crash happened shortly after in October 1987.  He presided over recessions in 1990-1991 and 2001.  He holds much responsibility for the major recession/ financial crisis in 2007-2009 even though he was no longer in office.  Greenspan was in office for a long period of over 18 years.  Despite supposedly being a disciple of Ayn Rand, Greenspan was mostly terrible, engaging in consistent monetary inflation.  The monetary pumping pales in comparison to the period of 2008 to 2014, but it is still no excuse.  The Fed’s policies of easy money and low interest rates led to the tech stock boom and bust and then the housing bubble and bust.  It was also the main culprit of the financial crisis.

Ben Bernanke was left holding the bag.  He took over in February 2006 and adopted the correct policy of tight money.  The problem is that this exposed all of the previous malinvestments from the Greenspan era.  And as soon as the financial crisis hit, Bernanke was part of the plan for bailouts and massive monetary inflation.  Bernanke wasn’t a bad Fed chair because he presided over the major recession that became evident in 2008.  He was a bad Fed chair because of the bailouts and QE1, QE2, and QE3.

He left office in early 2014.  Janet Yellen took over and we have not yet seen an official recession.  Growth has certainly been lackluster, but not officially recessionary.

Yellen presided over the end of QE3.  It was already winding down when she took office and it finally ended in October 2014.  Since that time, monetary policy has been tight.  Sure, interest rates have remained low, but the Fed’s balance sheet has not expanded during this time.

Again, this is the correct policy.  Even though she is considered to be a Keynesian and to the left (she was nominated by Obama), she has still fallen in line with the establishment.  Up to this point, her policies have actually been mostly good, setting rhetoric aside.

The problem is that she hasn’t really been tested yet.  Bernanke didn’t really do any damage until the crisis hit.  Then he ramped up the digital printing presses as no other Fed chair has ever done in history.  We should assume that Yellen would do the same if faced with a major financial crisis.

Yellen’s term is set to expire in early 2018.  While Trump had initially indicated that he would replace Yellen, now there has been a softening and some indication that he might allow her to stay.

It is incredible that Yellen has been able to avoid a recession on her watch for nearly 4 years.  Whether or not a recession hits before early 2018, I think it would be wise for Yellen to step down (from her point of view).  I know these people like the prestige and power, but she should thank her lucky stars if she can exit gracefully without a recession on her watch.  She can hand off all of the problems to the next Fed chair.

If there are no major economic changes between now and early 2018, Yellen could leave office as being one of the least inflationary Fed chairs in modern history.  That is a story that most libertarians could not have predicted.

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