I knew that former Federal Reserve Chair Dr. Janet Yellen is incredibly intelligent, but I recently learned that she is also a barbeque lover. And that there are three main drivers behind how The Federal Reserve Board steers the course of the US economy.
Where did I learn these things? From the horse’s mouth.
I was fortunate enough recently to spend a couple of days at an investment conference hosted by Charles Schwab attended by a handful of financial advisors and some of the best money minds in the country.
The lineup for the event featured some of the industry’s best minds – Jeffrey Kleintop on global markets, Liz Anne Saunders on the US stock market and economy, David Edelman from MIT, one of the nation’s leading experts on artificial intelligence, Greg Valliere on Washington politics. And then there was my favorite speaker, Dr. Yellen, who left the Federal Reserve Board chair earlier this year.
During a special Q&A session with her, I was able to get a genuine feel for how Dr. Yellen thinks and operates. This was valuable insight. In my opinion, no single other position has more influence on our nation’s economy that the US Federal Reserve Chair – not the Secretary of the Treasury, not Warren Buffett or his buddy Jeff Bezos, not even our President.
On a personal level, Dr. Yellen is incredibly unassuming and personable. We shared an elevator last Wednesday evening after her arrival to the conference hotel, and she told me she was hungry. I suggested the barbeque restaurant where I had just eaten, and Yellen shared that she loves barbeque. So, that’s where I learned that tidbit about this great mind.
The other things I learned from Yellen came later the next day when some colleagues and I were able to sit down to our Q&A with her. During this session, we discussed everything from the most recent Fed hike to her early years and the Financial Crisis, to how she worked constructively with the 15 or so Fed board governors.
I want to share my list of the three main takeaways from the session with Yellen, and with a similar visit I had a few years ago with former Fed Chairman Ben Bernanke.
1. These folks at the Fed are, without question, the smartest people in the room. Everyone is brilliant, and everyone is accomplished. But the chair, while as brilliant as the rest, possesses a necessary and unique measured way of thinking and reasoning. Which leads me to my second conclusion…
2. The chair is undoubtedly the most logical and pragmatic person in the room. Both Yellen and Bernanke share a few traits critical to their former position – a deep understanding of what can work, and a deep understanding of which path will cause the least amount of havoc or panic.
3. Both Yellen and Bernanke are consensus builders. On this point, Yellen shared a simple example;
“Imagine you have 15 people who have all been tasked to paint the room. Some have brilliant blue, deep green, or bright pink in mind for the color. Meanwhile, it’s Janet’s job to get the smart, yet outlying, ideas dropped. She wants to get to off-white because she knows it is the smartest, most practical solution. Her duty is to convince the other 15 members to rally around this prudent decision too.
Remember, the Federal Open Market Committee of the Federal Reserve Bank has 15 governors – they all have their own ideas. The Fed Chair must, for the good of the board and the good of the US economy, have all of these folks working in harmony.”
It’s hard not to be impressed with the job that Yellen did, and Bernanke before her. And it’s hard not to be impressed with Yellen’s successor, Jerome Powell, who seems just as smart, just as practical, and just as focused on consensus building and keeping calm under pressure as his successful predecessors.
So far this year, the Fed has raised rates twice, the most recent raise happening just this past week. What do the raises mean? In essence, they signal that our economy is doing well.
Our current labor market is one of the strongest we’ve seen in 20 years, with just a 3.8% unemployment rate. Inflation is back to the 2%+ range, which is also good news since for the past seven years we’ve had inflation that was running under target.
Today, our economy is as robust as it has been in the past ten years.
This is a plain fact and was echoed by Yellen during our session. These days, she has a bit more leeway in what she can say about the health of our economy. And her prognosis is that we are going strong.
According to Yellen, the economy is solid and inflation is in a good place. Remember, the Fed wants full employment and price stability – a.k.a. inflation – in check, meaning not too hot, not too cold.
The folks at the Fed have their eye on the prize, and they also have an enduring sense of patience. Sure, they can mess things up; policy errors can happen, especially with the constant flow of new data. But according to my sources (er, source), it seems the economy is stronger than the news would have you think.