Do you know the name Janet Yellen? Many in this country don’t—but they should. She has tremendous influence over your investments, your income, the amount of debt you have, and a host of other money-related issues.
Yellen is Chair of the Board of Governors of the Federal Reserve System. While the average person probably isn’t even sure what that means, it’s pretty important. So let’s take a look at exactly what Janet Yellen does and how it affects you.
Janet Yellen’s Life and Career
Yellen has been an economist since 1971. She began as an assistant professor at Harvard and lecturer at the London School of Economics and Political Science. After that, she had a stint working with the Federal Reserve Board of Governors in 1977.
She was officially appointed to the Board of Governors in 1994, under President Clinton. She was President of the Federal Reserve Bank of San Francisco from 2004 to 2010—a position which allowed her to serve as a voting member of the Federal Open Market Committee, a branch of the Federal Reserve, in 2009.
In 2010, President Obama appointed Yellen as vice chair of the Federal Reserve System, and in 2013 appointed her as head of the organization. She’s served in that capacity ever since.
The Federal Reserve System
What does being head of the Federal Reserve Board entail? For one thing, this is the body that decides whether to raise or lower the interest rate. The cheaper it is for banks to borrow money from the Fed, the lower they make their own interest rates. Bank loans, credit cards, and other financial products cost less for the average consumer. This encourages spending among the American people and stimulates the economy.
On the other hand, a higher interest rate does just the opposite. Debt becomes more expensive, which leads to inflation. Prices go up while incomes stay the same, making it more difficult for people to make ends meet. If the Fed isn’t careful, the ripple effect of raising interest can lead to a recession.
Janet Yellen and the Fed
In 2008, under Yellen’s predecessor, the federal interest rate was dropped practically to zero: a range of 0-0.25%, to be exact. The reasoning was that, by making it free for the banks to borrow money, they could pass those savings on to the people, easing the harmful effects of the financial collapse and stimulating recovery.
The interest rate remained at that level for seven years. Then in December of 2015, the Fed voted to raise it again. It only went up by a tiny bit, but they speculated that they might increase it again up to four more times in the following year. So far, they have yet to do so. Many experts thought the rate might go up at the FOMC meeting at the end of September, but it remained fixed at 0.25-0.5%.
The FOMC meets eight times a year, and there is still one meeting left in 2016. Everyone wonders if the Fed will finally follow through with its plan to raise the interest rate. Up to this point, Janet Yellen has been considered a “dove.” That is, she’s concerned with factors such as lowering unemployment, and thus generally less likely to raise the interest rate than her predecessor, Ben Bernanke, who was a “hawk.”
Still, the interest rate can’t remain at this level forever. Eventually it will have to go up. Yellen and the Fed are reluctant to do so at the moment, because they doubt whether the economy has recovered enough yet.
Things are currently pretty tenuous in the financial world, both in this country and all over the globe. Raising interest too high or too quickly could plunge us right back to where we were in 2008—or worse. Still, many on the FOMC believe it’s time to get the rate back up. Will Janet Yellen and the Fed opt to raise interest—and inflation—before the year is out? Only time will tell.