Just what we need: another Fed chair who wants to ‘do something’

The latest Bloomberg Businessweek profiles Federal Reserve vice chair Janet Yellen, a potential successor to Ben Bernanke for the Fed’s top job. Those interested in sound monetary policy are not likely to enjoy reading the following passages.

The Federal Open Market Committee has already pushed the federal funds rate as low as it can go and embarked on a bond-buying spree. The main tactic left is influencing market expectations. With Yellen’s input, the Fed has turned increasingly to “forward guidance,” in its lingo, to persuade traders, chief executives, and ordinary Americans that they should invest and spend because monetary policy will be loose until the recovery has fully taken hold. The Fed’s also promising that inflation will be higher in the future than it is today, another argument for people to spend now.

The Fed, traditional guardian of sound money, is in the unaccustomed position of vowing to keep money easy despite growing pressure from bond-market vigilantes and politicians. The pressure to curtail bond purchases and snug up short-term interest rates will only intensify as the economy strengthens. Kansas City Fed President Esther George is already saying that Fed policy is “overly accommodative, causing distortions and posing risks.” Yellen herself is in the cross hairs. Bob Janjuah, global head of tactical asset allocation for Japan’s Nomura (NMR), told CNBC (CMCSA) in April, “A client said to me a few weeks ago that if Karl Marx was in charge of the world, he’d have Janet Yellen as his central bank governor.” …

… A more accurate description of Yellen than dove is “activist”—someone who isn’t afraid to wield the Fed’s enormous power to affect the real world. [Yale economist James] Tobin taught her that. “He encouraged his students to do work that was about something,” Yellen told the Yale Daily News after Tobin died in 2002. “Work that would not only meet a high intellectual standard, but would improve the well-being of mankind.”

Gee, I’m confident in the Fed‘s ability to improve the well-being of mankind, aren’t you?