WASHINGTON -- Janet Yellen, President Clinton's pick for a seat on the Federal Reserve Board, served notice Friday that she will not be a vote for an easy money policy if she gets the job.
At a confirmation hearing before the Senate Banking Committee, Yellen endorsed the Fed's moves this year to tighten credit and said it may be necessary to tighten credit again.
"I agree with the Fed's decision to reduce monetary stimulus before the emergence of obvious inflationary pressure," said Yellen, who turns 48 next month.
Yellen's nomination is subject to Senate approval and should be routine. Committee chairman Donald Riegle, D-Mich., and other panel members had high praise for her qualifications, which include a 14-year stint teaching international business and economics at the University of California at Berkeley.
If approved, Yellen would serve a full 14-year term as a member of the board of governors alongside Fed vice chairman Alan Blinder, President Clinton's first nominee to the central bank.
In her opening statement, Yellen offered an economic analysis and views of the Fed's role in fighting inflation that seemed to fit closely with the views of other officials. "Price stability should be a central goal of monetary policy," she told the panel.
She then said the Fed's "second objective" should be to keep the economy growing as close as possible to the natural rate of unemployment, which she defined as "the lowest rate of unemployment that the Fed can target without risking accelerating inflation."
Many analysts believe the current 6% jobless rate is close to the natural unemployment rate, a view that Fed chairman Alan Greenspan seemed to endorse in his testimony last week when he cited a number of signs of emerging labor market pressures.
The Federal Reserve Act requires officials to seek "maximum employment" and "stable prices," and members of Congress sometimes complain that the Fed fails to give equal weight to both goals.
But Yellen indicated that she shares the view of many Fed officials that the economy has been growing too rapidly, and that trying to fuel growth artificially with low rates will only prove futile by raising inflation.
"In the short run, the Federal Reserve faces a trade-off between the goals of low inflation and high employment," she said. "But a monetary policy which pushes the economy beyond its potential for the sake of current job gains is shortsighted and ultimately unfair to American workers."
Many analysts say the economy's potential growth rate is in the range of 2.5% to 3%. Growth in recent quarters has been above that range.
Yellen, who has done specialized research on labor market issues, said the "pursuit of job gains in the short run, in excess of what the economy can sustain, engenders inflation, and later job losses constitute the cost of bringing inflation down."
Yellen said that while "inflation appears to be stable at this point" and "well contained," the current situation facing the Fed seems mixed.
"The administration has said that the high growth rates that we had at the end of 1993 and the beginning of 1994 couldn't be sustained, and I think we know that the pace of growth in demand has to come down to something matching the economy's potential to grow," she said.
"I would like to see that happen, but I don't want to see the economy slip into a recession. I want the Fed to be ready to act if this slowdown that we see occurring now goes too far, and by the same token, if we signs of emerging inflation -- that they appear on the horizon -- the Fed also has to be prepared to act," Yellen said.
Yellen is best known in academic circles for her research on wages and prices, which includes work on wage-setting practices by business and their impact on unemployment. She has also done work in international economics and exchange rates, areas of expertise that have been lacking on the current board since the departure of E. Gerald Corrigan, president of the New York Fed.
Yellen has some experience in official circles. She served as an economist in the Fed's international finance and trade section during the late 1970s and served recently as an adviser to the Congressional Budget Office.
