Janet Yellen's Fed
The four-year term of the Federal Reserve's first chairwoman has ended. John Authers assesses her legacy on US industry and markets.
Filmed and edited by Donell Newkirk. Additional footage and stills courtesy of Reuters and Getty.
Janet Yellen's four-year term as the first female chair of the Federal Reserve has just ended. How did she do? Well, the Fed officially has a dual mandate to maintain full employment and to keep inflation stable. And on that basis, as you can see, it's very hard to complain about anything she has done. The target for inflation has been 2% throughout her time in office. And that's almost exactly where inflation is now. It dipped a little in the middle, but basically inflation has stayed nicely under control throughout that time.
Meanwhile, even if there is very serious ongoing structural long-term unemployment, the unemployment rate has fallen consistently throughout her term. So it's hard to complain about the job she's done there.
Now if we take a look at what many people care about most when it comes to the financial world, which is the performance of the stock market, you can see that American stocks have performed fantastically under the Yellen Fed. The S&P in itself, all these numbers are rebased. It has, obviously, gained almost 50% over that time.
If you deflate that by gold, which can be a way of showing whether this has really been achieved by currency debasement, you can see that the S&P has strongly outperformed gold as well. And if you compare it to the FTSE's rest of the world index, you can see that the US has indeed strongly outperformed the rest of the world in terms of its stock markets during Janet Yellen's tenure. Again, it's very hard to complain about the results that she has managed in her four years.
Now what's impressive is that she has done this even as the Fed has, after many years of record low interest rates, raised rates five times. But here perhaps her record can be a little overstated. What we're looking at here is what's happens to the balance sheet over the last 10 years. Under her predecessor, Ben Bernanke, the balance sheet expanded hugely. In other words, they bought lots of bonds in an attempt to push bond yields' interest rates down. Under Janet Yellen, we saw the end of that programme, and then the very, very tiny barely visible move towards reducing the balance sheet again.
But if you take a look at the Chicago Fed's Financial Conditions Index, you can see that, in fact, any - the lower the number is there, that means the easier financial conditions are. Thanks to QE, aggressive expansion by other central banks, financial conditions have, in fact, steadily got easier in the US under Janet Yellen's tenure. You could argue that she has been lucky.
It is, however, very hard to argue that she doesn't deserve another term. Jay Powell, her successor, has been on the board for the last four years. He's regarded as a continuity candidate. But it does raise the issue, why was it necessary to hire him when a better qualified woman was available?