Former Fed Chair Sees A Solid Economy, But With Risks Ahead

A former head of the Federal Reserve says the U.S. economy remains in good shape overall but with risks ahead, including modest growth, an aging population, weak gains in worker productivity and high federal deficits.

"I'm worried about trillion-dollar deficits for as far as the eye can see. … This is a time when the budget should be in balance or even in surplus ..." Janet Yellen said during an appearance Thursday evening in Kansas City, where she accepted the 2019 Truman Medal for Economic Policy. Yellen, an economist, in the late 1990s was on the White House Council of Economic Advisors – a group President Truman created – and then was in several high posts with the Federal Reserve for 14 years, including chair from 2014 to 2018.

President Trump has frequently criticized the Fed and has said it should keep cutting interest rates, but Yellen said its nonpolitical approach is crucial.

"I hope it stays that way (independent), but I do worry about it," Yellen said after the award presentation during a conversation with Washington Post columnist David Von Drehle, who lives in the Kansas City area and sits on the board of the Truman Library Institute, one of the award's sponsors.

Von Drehle noted massive shifts in the economy, mainly globalization and advances in technology. Yellen agreed and said that's widened income inequality.

"So a good half of the population has seen no meaningful gains … since the mid-1980s," she said.

Overall, the U.S. economy has grown well in recent decades, but low-skilled workers have been left behind.

"The division of that pie has become more and more unequal," she said.

By law, the Fed has a double mandate: keep employment up and inflation down. Yellen touched on both.

She said her parents came through the Great Depression, and her father's experience as a doctor in a blue-collar neighborhood where many were thrown out of work taught her the fundamental value of a job. The best way to help the poor, she said, is maximum employment.

Inflation, she said, hasn't turned out as expected. Short-term interest rates fell to essentially zero during the Great Recession of 2008-09 and stayed there for seven years – but didn't kick off inflation. They remain low today – but still no significant inflation.

"And most researchers believe this is the new normal," she said.

Yellen and Von Drehle gave Truman credit for a host of economic measures – chiefly the Marshall Plan, saving Western Europe's economy after World War II – but also such things as creating the Council of Economic Advisors. Yellen said that gives a president objective information and well-researched options reflecting different points of view.

She also said economics remains a tough field for women, pointing out that women make up more than half of the country's college undergraduates – but only one-third of economics majors. She said she had good mentors and good opportunities at the Fed.

"But I may be the exception rather than the rule," she said.

The event was held in the Truman Forum, a large gathering space at the Plaza branch of the Kansas City Public Library. The Truman Medal for Economic Policy is given every other year, and past winners include two other for Fed chairs, Alan Greenspan and Paul A. Volcker.