We are midway through our second courses when Janet Yellen stops me in my tracks. “This is your interview,” she says politely, “but there is an area I would like to go into.” I cede the agenda and the 72-year-old economist plunges into a dissection of what she sees as worrying trends in America’s financial sector. She may be quietly spoken and unassuming in manner, but Yellen, I am reminded, is always firmly in control.
Her four-year tenure as the most powerful person in global finance, which ended in February, bears that impression out. A canny tactician with a dry sense of humour, Yellen proved to be a highly effective chair of the US Federal Reserve, corralling an unruly body of outspoken central bankers into a smooth exit from the ultra-easy monetary policy of the crisis years.
Former Fed vice-chairman Stanley Fischer, who unsuccessfully attempted to push Yellen into a more aggressive sequence of interest rate rises, stressed her toughness shortly before he left the central bank. When someone goes after her, he told me, “she goes right back”.
I meet Yellen at Al Tiramisu, an unpretentious Italian restaurant in north-west Washington DC that is popular with local diplomats. She has a habit of turning up early to appointments, so I arrive 10 minutes before we are scheduled to meet. But as I enter the softly lit establishment I spot a familiar figure dressed in a purple coat with upturned collar and realise Yellen has beaten me to it.
She smiles broadly and holds out her hand as I hurry over to the secluded corner where she is sitting. It has been just under a year since Yellen’s bid for a second term as Fed chair was turned down by Donald Trump, dismaying many inside the central bank. Since her departure, relations between the president and the Fed have become rancorous, as Trump castigates the new chairman Jay Powell for lifting interest rates.
Powell has remained impassive in face of the onslaught, but now that Yellen is on the outside and working at the Brookings think-tank, she is under no such constraints. “I think he has the potential to undermine confidence in the institution,” she says of Trump’s verbal assault. The danger, she argues, is not confined to the Fed; it extends to other institutions including the FBI and media. The attacks are “whittling away the legitimacy and stature of institutions the public has traditionally had some confidence in. I feel it ultimately undermines social and economic stability.”
Al Tiramisu has a cosy feel, the rustic ambience only mildly impaired by piped pop music in the background. The walls are decorated with standard-issue Italianate scenes, including a painting that appears to be of Venice. Yellen explains that she and her husband, the Nobel Prize-winning economist George Akerlof, are regulars at the restaurant, which she says is an easy journey from their house in Georgetown. Alan Blinder, a former Fed governor who served alongside Yellen in the 1990s, introduced them to it.
A waiter arrives and displays chilled specimens of the fresh fish on offer before reeling off an exhaustive list of specials. We both opt to start with prosciutto with buffalo mozzarella and yellow peppers, which turns out to be excellent. I try to press a glass of wine on Yellen, joking that this is part of the Lunch with the FT playbook. She smiles but declines, with a firm “I don’t think so.” A drink in the evening is permissible but Yellen does not like to fuzz up her brain during the day.
As we talk about her years as Fed chair, Yellen acknowledges that the period was more tranquil than that of her predecessor Ben Bernanke, who presided over the 2007-09 financial crash and the disastrous recession that followed it. But it was by no means a “cakewalk”, she says. The key challenge was recognising that the economy was still fragile when she took over in 2014 and that there was little scope to stimulate growth if the recovery fell back to earth. “A communications failure would probably not have had a huge effect, but a policy mis-step might well have,” she says.
Yellen’s rule appeared from the outside to be a collegial one — especially by comparison with that of the dictatorial Alan Greenspan, under whom Yellen served in the 1990s and 2000s. “People would start going around the table and saying, ‘Yes sir, I support your proposal,’ ” Yellen recalls. “And that is it. There was never any discussion about policy.”
Yet Yellen proved adept at balancing competing views and getting what she wanted. One tactic, she says, was injecting slivers of language into the Fed’s policy statements to quell the particular concerns of dissenters. “I never felt I did anything because of pressure from other people,” she says.
This is awfully early to be criticising us. Think about what is going to happen later on as the economy slows. It is a frightening prospect
Her cautious approach to tightening appears to have paid off: the US is currently in a boom, with unemployment at its lowest level since the 1960s. But that doesn’t mean policy always went Yellen’s way. Back in 2013, when joblessness was far higher, a clutch of governors dubbed internally the “three amigos” were fretting about the scale of the Fed’s economy-boosting asset-purchase programme. The group, which notably included Powell, was worried it could trigger financial instability.
Yellen, who at the time was serving as Bernanke’s vice-chair, makes no attempt to disguise how wrong she feels they were. She wanted to make a commitment to boosting the economy that was akin to the “whatever it takes” vow that European Central Bank president Mario Draghi made in respect to the euro.
Instead, she felt the policy was getting “caveated like crazy”. A central bank needs to “show less timidity”, says Yellen, who was strongly influenced by her mentor James Tobin’s belief in a government’s ability to combat recessions. “I really thought we needed to pull every rabbit out of the hat.”
We have finished our starters and Yellen is tucking into pappardelle with mushrooms, which she says she hasn’t tried before, while I start on a plate of ravioli with spinach and sage. My dish is tasty but the portion is on the lean side and I look with a twinge of envy at Yellen’s hearty-looking pasta dish.
Given the tumultuous political backdrop to our meeting, I am curious about the twists and turns in Yellen’s dealings with Trump. As a presidential candidate he savaged Yellen’s handling of the economy, accusing her of keeping rates low to help Barack Obama. Yet as soon as he came to office, the new president largely fell silent on the topic.
Yellen admits she watched warily for presidential tweets as she raised rates, but says he never tried to influence her policy choices — either publicly or behind the scenes. When it came to appointments, however, she was in no doubt that Trump wanted his own candidate in the chair. The entire process was driven by “this shared assumption we are replacing Yellen”, she says.
Yellen says she has confidence in Powell, whom she thinks will do a good job. But intriguingly, she believes the president had last-minute second thoughts about denying her another term. “I have some reason to believe he wondered if it might be a mistake to replace me after meeting with me,” she says. “I think when I walked out of that interview he thought to himself, ‘Gee, she is really good and I really like her.’ ”
If that’s right, it would be interesting to know what the president is thinking today. Despite Powell’s earlier worries about the Fed’s easy money policies, his approach as chair has been a direct continuation of Yellen’s gradual tightening, and rates are still low in the US at just 2-2.25 per cent. Yet Trump has started clouding the airwaves with verbal assaults on Powell’s rate rises, accusing him of being out of control and tanking the stock market.
I ask Yellen why she is so worried by these attacks, and it prompts a long pause. “If the public has lost confidence in the Fed in a serious way, that will be reflected presumably in congressional actions towards the Fed,” she says. “I believe in public service, and I believe the Fed and quite a number of government agencies attract people of goodwill who are devoted to public service ... To totally undermine these institutions that are assets to the United States and the globe is worrisome.”
The Fed’s status with the public had already been damaged by its involvement in the Wall Street bailouts, Yellen adds, and while politicians are entitled to criticise the central bank, Trump’s complaints come against a strong economic backdrop. “This is awfully early to be criticising us,” she says. “Think about what is going to happen later on as the economy slows. It is a frightening prospect.”
Yellen’s concerns about the current drift of policy are not confined to anti-Fed rhetoric. She recalls attending a G20 meeting in Germany last year alongside Treasury secretary Steven Mnuchin, during which the US insisted on dropping pledges to resist protectionism that were previously in the countries’ joint communiqués.
These were pledges that successive US administrations had spent years advocating. “I am sitting there and thinking, ‘My God, think about the history of this’,” Yellen recalls. Common acceptance of this language “represents a triumph for the US in the postwar period”, she says. “And here is the United States completely deep-sixing that as a governing principle for global economic relations without having anything obvious to replace it with.”
At home, the post-crisis regulatory framework is unfinished, she argues, yet Washington is currently embarked on a drive to ease burdens on financial firms rather than plug gaps. Among the key vulnerabilities are lending to indebted, less creditworthy corporate borrowers, which Yellen sees as a source of potential systemic risk. “There are a lot of holes,” she says. “We should not feel the financial stability glass is full.”
The restaurant is beginning to quieten down as we order espressos and discuss Yellen’s background. Born in 1946 and raised in Bay Ridge, a middle-class part of Brooklyn, she came from a close family. Her mother was a teacher who stayed at home to look after Yellen and her brother. Her father was a doctor who had studied medicine at St Andrews University in Scotland, in part because it was so difficult at the time for Jewish medical students to find openings in the US.
Yellen grew up to be an academic star. Saturdays were spent not on the sports field but browsing the mineralogy hall of the Museum of Natural History, or in extracurricular mathematics classes. While some school students swapped baseball cards, Yellen and her friends traded rocks.
This is awfully early to be criticising us. Think about what is going to happen later on as the economy slows. It is a frightening prospect
I ask if Yellen still has her mineral collection and it transpires that she does — the trove sits securely in boxes in Berkeley, California, where she and her husband own a house. She gives me a bemused look after I ask if she had a favourite, and reveals that she did: a chunk of Tasmanian crocoite she bought as a girl from a store in Manhattan.
It was “the apple of my eye in terms of minerals”, she says, chuckling to herself, before finding a picture of the rhubarb-coloured crystals on her iPhone.
Perhaps sensing that I’m seeking to typecast her, Yellen points out that she spent plenty of time hanging out with her friends and that she was not a “nerd”. And while her gifts in mathematics were formidable, she decided at Brown University to pursue a discipline rooted in real-world problems, entering the field of economics.
She later met her future husband Akerlof in the staff canteen of the Fed, where they had research posts, and the two ended up collaborating on work closely. They have a son, Robert, who teaches economics at the University of Warwick. The three are close and holiday together. “He still seems to like his parents for some odd reason,” she says, smiling.
She credits her husband and son for encouraging her to stand her ground and not be pushed around when dealing with the internal battles she faced at the Fed. “They pushed me to be more aggressive than maybe I would have been.”
I am rounding things off with a plate of tiramisu, and at my invitation Yellen helps herself to a bite. Trump’s failure to re-nominate her to the Fed marked a defeat for the cause of women in a male-dominated profession, but she says she did not hear anything to suggest that sexism was a part of it.
The same cannot be said for the broader world of economics. Twenty years ago, Yellen recalls, she would probably have argued that being a woman had done nothing to slow her career progress. Today her take is darker. A lot of work in academic economics is done jointly, she says, and it was very difficult for women to break into the male-dominated social and professional circles in which ideas were shared and projects hatched.
A recent furore over sexist posts on an online economics jobs messaging board shows what women are still up against. There are men in the field who are “extremely aggressive and hostile towards women”, Yellen adds. This can entail demolitions of women’s work in seminars that can be confidence-shaking. Nice guys watch disapprovingly, she says, but that doesn’t mean they speak up.
The Fed itself has faced mounting pressure to boost participation of minorities and women, and Yellen makes it clear this is also very much a work in progress. “There is not much of a pipeline of women in the field,” she comments.
By this time the restaurant is emptying and the pop music has been silenced. Two and a half hours after we started lunch, I suspect that the staff would not be too disappointed if we headed for the door. Yellen offers to contribute to the bill, but I decline in accordance with Lunch with the FT rules.
We part ways on a chilly street corner and Yellen makes her way back to Brookings on foot. It is an obvious contrast to the black government cars that were whisking her around town until just a few months ago. Trump may have deprived Yellen of the trappings of high office, but she clearly has no intention of retreating into silence.
- Copyright The Financial Times Limited 2018.