On Monday, around 100 members of the Yale community gathered in the Edward P. Evans Hall to listen to former chair of the Federal Reserve Janet Yellen GRD ’71 and the professor whose chair bears her name — Andrew Metrick, the Janet L. Yellen Professor of Finance and Management.

Yellen, who left the helm of the Fed in 2018 after a four-year tenure as the Fed’s first female chair, is now a Distinguished Fellow in Residence at the Brookings Institution. In a conversation on economics and the Fed on Monday, Metrick and Yellen discussed the Fed’s upcoming internal review, issues of inclusion and inequality and high leverage in the economy.

Yellen noted that the upcoming review — the first of its kind — will survey the Fed’s economic tools, policies and communication strategies.

“What motivates the review is that if another downturn hits, even if it won’t be one caused by a financial crisis, even if it’s a simple recession, the Fed won’t have enough tools to address it,” she said.

According to Yellen, interest rates — figures that have implications on the health of the economy — are currently decreasing in developed countries. Yellen attributes this phenomenon to a high level of savings and lower demand for investment spending. But with low interest rates, the Fed has little room to repair the economy before turning to other policy changes.

Metrick suggested that the Fed has three options: controlling inflation, targeting price level or targeting nominal gross domestic product. Yellen’s administration had set the national inflation target rate at 2 percent.

“When we decided a 2 percent inflation target, one of the issues that arose was how often the economy would hit the zero lower bound,” she said. “We thought this would be infrequent, but given this normal downdrift of interest rates, we could be there a third of the time.”

In hindsight, Yellen admitted that the Fed could have chosen a higher inflation rate, especially given that interest rates cannot be negative, hence the zero lower bound.

Still, she is not in favor of raising the target inflation rate. And even if Congress were to approve an increase — which she thinks would be unlikely — the public would not approve.

“The public wouldn’t want higher inflation rates because they think that their wages would go less far in terms of spending, but this is not true,” she said.

Of potential policy changes in response to falling interest rates, Yellen favored price-level targeting, an alternative method to maintaining price stability in the economy.

Metrick also inquired about Yellen’s unusual emphasis on issues of inclusion and inequality, “something that the monetary policy community was [previously] not talking about.” Yellen was the first woman chosen to lead the Fed.

She said that she wanted to change the perception of the Fed after the reserve bailed out Wall Street in 2008. At the time, many members of the public associated the Fed with corruption in finance. Yellen reaffirmed the Fed’s commitment to “mainstream, ordinary citizens.”

Three student attendees interviewed by the News said that the conversation between Yellen and Metrick was informative. One student donned a T-shirt that read “It’s going down, I’m Yellen timber.”

Gordon Shao SOM ’21, who attended the event, said the talk was “more technical than I expected.” Still, he was inspired by Yellen’s perspective on economic issues.

“[Leverage debt] is an obvious and serious issue in China, where I’m from, but I didn’t realize that it was an issue in America as well,” he said. “I was surprised to see how much it resembles the financial crisis of 2008.”

Andrea Zúñiga Baca SOM ’19 noted that Yellen clearly explained how to use monetary policy when the economy is stuck in a zero-bound situation, a predicament she has studied in classes here.

For Akshay Prasad SOM ’19, Yellen’s sentiments about diversity and inclusion were the most poignant.

“[It was insightful when] she talked about more women in the Fed,” he said. “We should encourage more women to come because as she said, you actually see more women in politics and less women heading central banks.”

Yellen was appointed chair of the Fed in 2014.

Samuel Turner | samuel.turner@yale.edu