A Monetary Mind at the Treasury
Former US Federal Reserve Chair Janet Yellen's forthcoming appointment to lead the Department of the Treasury is good news for advocates of rules-based monetary policymaking. Following a period of emergency measures, what the US needs now is a return to clear and predictable decision-making.
STANFORD – No US secretary of the treasury will have spoken out so often and with as much authority about monetary policy as Janet Yellen once she is sworn into that position. The only other former Federal Reserve chair to become treasury secretary was G. William Miller in 1979, and he had spent only one year at the Fed. Yellen, by contrast, previously served for two decades there – through good times and bad – with stints as staff economist, governor, president of the San Francisco District, vice chair, and chair.
Such experienced leadership at the top of the treasury department will matter greatly for monetary-policy rules and strategy in the months and years to come. In anticipating what Yellen might do, there is a long history to consider. In 1996, when she was a Fed governor, she spoke about policy rules in a speech entitled “Monetary Policy: Goals and Strategies.” Holding up the Taylor Rule as an exemplar, she said that it “has appealing properties as a normative description of how policy ought to be conducted.”
Listing some of these properties, Yellen noted that the Taylor Rule has a “long-run inflation target,” and that it entails “a strategy for handling tradeoffs … taken in the context of a systematic long-run strategy.” It has been shown “to deliver remarkably good performance in the face of a wide variety of shocks,” and it can “help the Federal Reserve communicate to the public the rationale behind policy moves.”