Former Chair of Federal Reserve shares economic concerns

October 4, 2019

Janet Yellen, former chair of the Federal Reserve and the first female to ever hold the title, said that she has concerns with the current state of the economy during Brandeis International Business School’s (IBS) 25th anniversary celebration in Spingold Theater. She spoke with Rosen Family Chair in International Finance Professor Stephen Cecchetti (ECON) to roughly 600 audience members, according to BrandeisNOW.

Yellen explained the actions that led to the 2007-2008 financial crisis, including shadow banking, which she said “still remains a problem.” She said that mortgage lending is safer, however, due to rules that were put in place following the recession.

“Economic performance is better when central banks operate in a nonpolitical way, independently,” said Yellen. “We are worried about developments that we see happening in the United States, politicization of the Federal Reserve, and feel that that would be a grave mistake. We’re now in a period where there’s deregulations, deregulatory fever. Regulations are being dialed back. That concerns me.” 

Yellen said that she is also concerned about the country’s spending.

“I’m perfectly comfortable with the debt to GDP ratio that we have today and think it could even be a little bit higher, but that’s not the end of the story at all,” said Yellen. “What I’m worried about is the trajectory the debt to GDP ratio is on.” She continued, “We have a 2.8 percent primary deficit today, and that is not small. If you left the primary deficit at 2.8 percent, it would result in a run-up over time in the debt to GDP ratio.” 

Yellen is a distinguished fellow in residence with the economic studies program at the Brookings Institution. Yellen also served as vice chair of the Federal Reserve Board from 2010 to 2014 before serving as chair in 2014 to 2018. She was also president and chief executive officer of the Federal Reserve Bank of San Francisco from 2004 to 2010, as well as chair of the White House Council of Economic Advisors from 1997 to 1999, according to the Brookings Institute website.

“I don’t regret anything that has been done, but I do think there are holes, and I don’t think we did enough,” Yellen said. “I worry that as time goes by, the same kinds of vulnerabilities that led to that financial crisis can recur. I think a lot has been done, but I’m still worried, and I dont think its enough because let’s think about why we ended up with a financial crisis.” 

She continued, “When you see very rapid growth in credit, very rapid growth in gas prices, history suggests there’s likely a problem at the end of this, and it may be really wise, for the sake of the economy and its financial and economic stability to do something to constrain the price of gas prices and lending, or other areas where this might develop.” 

Yellen, who also serves as a member of the Climate Leadership Council, shared her concerns about the effect that climate change will have on the economy. She has signed the Economists’ Statement on Carbon Dividends, which has been signed by over 3,500 economists, including Cecchetti, 27 Nobel laureates, all four former Federal Reserve chairs, and 15 former chairs of the Council of Economic Advisers unite behind carbon dividends as the bipartisan climate solution, according to the Climate Leadership Council’s website.

Yellen said that climate change might be the “top issue facing the globe.” 

She added that the 15 agencies who collaborate in the United States to assess the impact on climate change published that climate change is going to negatively impact the economy’s growth and will do so to a substantial extent unless there is “rapid and effective legislation.”

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