At the helm of the Fed's board and the interest rate-setting Federal Open Market Committee, Yellen can produce global waves. She will be presiding over the gradual withdrawal of the Fed's extraordinary monetary stimulus of the past five years. The process should eventually bring rewards for the U.S. and its partners, but it can cause pain too – as the turbulence of the last few days have shown in emerging market economies ranging from Brazil and Turkey to Argentina and India.
In aftermath of the financial crisis, central banks across the world, are being called upon to take up an ever-wider set of responsibilities - not just monetary stability but also fiscal policies and banking supervision. All this brings strains on their operating maneuverability as well as on their independence.
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The burdens on Yellen are acute. Yet in her new role, both in America and globally, she is likely to accomplish that task better than most. She can combine her first-class economics training with ability to drawn on diverse experience to master two great challenges: returning U.S. monetary policy to a more normal path, and helping prepare America for a multi-polar world in which it shares economic and financial power more equitably with other countries, not least in Asia.
What is remarkable about Yellen's appointment is not that she is a woman. She was the best candidate for the job. More important, she had to overcome the favoritism of the old boy network at the White House. President Obama haplessly clung, almost to the last moment, to his preferred choice, former Treasury secretary Lawrence Summers – a brilliant man, but one whose intellectual skittishness and sometimes unm! annerly behavior would have made him highly accident-prone.
The president eventually caved in and accepted Yellen's impressive credentials. By raising her reputation for independence and damaging that of the president for sound judgment, the episode harmed Obama much more than Yellen.
Yellen is a Keynesian economist but not dogmatic. She has been sometimes overshadowed by her husband, George Akerlof, who won the Nobel prize for economics in 2001. Yellen now moves truly out of the shadows. She is extremely smart but has no need to appear the smartest person in the room.
Already, for reasons unconnected to gender, she has made history for several reasons. At 67, she is the oldest person ever appointed to be Fed chief and the first vice chairman to ascend to the top job. She is the first Democrat called upon to lead the Fed since President Jimmy Carter appointed Paul Volcker in 1979. She and Stanley Fischer, another veteran of global reputation, will be a star team.
In past years Yellen has drawn attention to the balance sheet vulnerabilities of U.S. banks that would face large write-down on their bond holdings should the Fed abruptly stop asset purchases. If the bond purchase program wind-down coincides, as planned, with a pick-up in the economy, an increase in banks' lending and a reduction in their government bond holdings, then this factor will be a great deal much less crucial.
Generally, though, political and economic circumstances will make 2014 a lot less benign than 2013 for financial markets.
Diminutive, low-pitched Yellen was considered by some in the vetting process last fall to lack gravitas – as if only a 6-foot-7 inch, gravel-voiced cigar-chomping male like Paul Volcker could be said to have that quality. The Fed faces enormous challenges. A 5- foot-3 inch lady from Brooklyn who speaks softly but carries a big monetary stick is not the worst person to tackle them.
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David Marsh is chairman of the Official Monetary and Financial Institutions Forum (OMFIF), a London-based think tank that promotes dialogue between private-sector and public institutions on world finance.
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