Feb 21 As the financial crisis deepened in 2008,
Janet Yellen argued at least twice for a more aggressive cut to
interest rates than most of her colleagues at the Federal
Reserve, internal documents unsealed on Friday showed.
For Yellen's critics, who worry the new Fed chair is a
policy "dove" partial to overly easy monetary policy, that
revelation will add grist to their mill.
But at the same time the transcripts of that year of fraught
decision-making at the Fed will equally make the case for those
who applaud Yellen for seeing the depth of the crisis before
others and advocating an aggressive response, even more so than
then-Fed Chairman Ben Bernanke.
At both a top-secret conference call in early January 2008
days after a dismal jobs report and another one in October just
weeks after Lehman Brothers' market-shaking collapse, Yellen
argued the need for a more muscular policy response.
"I support a 50-basis-point (half-percentage-point)
reduction in the federal funds rate in the near future," she
said on January 9, adding that she would prefer to cut rates by
a quarter-point that very day, more than two weeks before the
Fed's regularly scheduled meeting.
It was not to happen. Though Bernanke said he thought a rate
cut would be needed soon, he had called the meeting not to take
policy action but to gather his colleagues' thoughts ahead of a
speech and congressional testimony. He wanted input on the
signals he ought to convey to financial markets.
By the time the Fed did cut rates on January 21, it opted
for a hefty three-quarter-point move.
Yellen, who at the time ran the San Francisco Fed, also
called for stronger action during a conference call on October
7, about three weeks after Lehman Brothers failed and sent shock
waves through financial markets.
Bernanke was using the call to gather support for a
"In my opinion, a larger action could easily be justified
and is ultimately likely to prove necessary," Yellen said on the
call. "We're witnessing a complete breakdown in the functioning
of credit markets, and it is affecting every class of
Despite her calls for more action, Yellen was not the most
"dovish" of Fed policymakers at the table. That label goes to
Boston Fed President Eric Rosengren, who called for a rate cut
in September when the rest of the policy-setting panel,
including Yellen, preferred to leave rates alone.
Yellen has sought to portray herself as even-handed,
supporting rate cuts when merited, but equally supporting rate
increases when needed.
That view of her policy proclivities is also borne out by
the transcripts, which show that in the middle of 2008 - before
Lehman's failure - she was open to the possibility of a rate
rise by the year's end.
"Assuming that the data on growth and inflation come in
roughly as I ... expect, I would envision beginning to remove
policy accommodation toward the end of this year," Yellen said
at a June meeting.
Still, she was far from confident that forecast would pan
out even though incoming data had eased her fears of a severe
recession. "Given the numerous large and worsening drags on
spending, a couple of months of data aren't enough to convince
me that we are on a solid trajectory," he said.
By the end of the year, she was no longer in doubt.
"I think the forecast is grim," she said in December, when
policymakers cut rates to near zero.
She was not alone. Indeed, the word "grim" was used that day
by two of the Fed's most hawkish policymakers, Richmond Fed
President Jeffrey Lacker and Philadelphia Fed chief Charles