On February 1, Janet Yellen becomes Chair of the Federal Reserve Board - the first woman to lead the institution in its 100-year history. She assumes her august position at a critical juncture. Immediate challenges of great importance - above all, tackling unemployment and strengthening financial regulation - confront her and the nation.
Beyond these are fundamental longer-term issues that include demands for greater transparency and accountability in monetary policy - and, indeed, the restructuring of the Fed itself to achieve more far reaching democratic change.
How Yellen handles these challenges will define her role as one of the nation's - indeed, the world's - most important policy makers. It will also indicate whether she has the skill and determination to create a new direction rather than merely react to the pressures of an institution traditionally responsive primarily to Wall Street and banking industry concerns.
Since the financial crisis of 2008 the Federal Reserve Board has used its powers to stabilise and attempt to jump-start the economy, pumping trillions of dollars into the US financial system. Partly in response, traditionally opaque Fed operations have come under scrutiny as never before. Politicians of all persuasions are increasingly critical of its activities.
In 2010 Congress enacted legislation requiring an audit of the Fed's activities during the crisis. The amendment was approved 96-0 in the Senate. Leading proponents included one of the most conservative members of Congress, then Representative Ron Paul, and one of the most liberal, Senator Bernie Sanders. In 2012, proposals for an even more expansive audit of the Fed were overwhelmingly approved by the House of Representatives. Then Congressman Dennis Kucinich, a staunch liberal, joined Paul in promoting the bill.
Nor is criticism confined to Congress; the American public is equally skeptical. A late 2010 Bloomberg National Poll found that 39 percent of Americans wanted the Federal Reserve Board to be more accountable to Congress, while 16 percent wanted it abolished entirely. Just 37 percent wanted it left as is. A 2013 Gallup poll found that only 33 percent of Americans believe the Fed is doing an excellent or good job, down from 53 percent ten years earlier.
Although the Fed strives to keep inflation in line, unlike some of its European counterparts it has a dual mandate charging it with also maximising employment. Among others, outgoing Fed Governor Sarah Bloom Raskin has suggested that job creation be given a much higher priority. She has also challenged tradition by pointing out that "if inequality played a role in the financial crisis, if it contributed to the severity of the recession, and if its effects create a lingering economic headwind today", then long-term income and wealth trends (rather than traditional narrow monetary measures alone) ought to be considered in setting policy.
Several of the 12 regional Federal Reserve Banks have, in fact, begun to take up questions related to growing poverty and inequality. A number have sponsored convenings of community leaders, local financial leaders, community development experts and others to explore "community wealth-building" and other strategies that involve the development of worker-owned cooperatives and various democratised forms of ownership. As the "recovery" continues to disappoint 3.9 million Americans who have been unemployed for 27 weeks or more, not to mention 46.5 million Americans living below the poverty line, Yellen could use her new position to expand upon and give national attention to such efforts.
Beyond this loom larger questions - not the least of which involves fundamental institutional restructuring. While ostensibly part of the federal government, the Federal Reserve Board is, in fact, intricately linked (in many regards, beholden to) the private banking industry centered on Wall Street. Around the country private banks "own" the regional Federal Reserve Board banks and collaborate closely on interest rate and monetary policy decisions.
"The Fed's favoritism toward bankers," William Greider, an expert on the institution, points out "is embedded in its DNA…The Federal Reserve is the black hole of our democracy."
Greider and others have proposed separating the Board's regulatory functions from the core business of making monetary policy and controlling credit. The former would be moved to other agencies of government and the latter made subject to Congressional oversight and public scrutiny. "The Fed," Greider observes, "would thus be relieved of its conflicted objectives."
Other experts have called for far-reaching changes in the way the United States creates money. Scholars associated with the "modern monetary theory" movement propose that instead of the current system in which new financial flows are pumped into the economy via private banks, the money creation process could be managed to far greater public benefit.
"If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the government's bank," asks Stephanie Kelton, an economist at the University of Missouri-Kansas City, "why don't we do something about our $2.2 trillion infrastructure deficit, 25 million underemployed and unemployed Americans, 100 million Americans in or very near poverty, and so on?"
Greider offers a related proposal in which the Fed "would continue to create money only as needed by the economy; but instead of injecting this money into the banking system, a portion of it would go directly to the capital investment fund, earmarked by Congress for specific projects of great urgency". Experts like Ellen Brown, president of the Public Banking Institute, go beyond this to suggest that "the Federal Reserve be made a public utility, owned by the people and serving them". She has also proposed a network of public state-owned banks like the one that has successfully served North Dakota for nearly 100 years.
Yellen will have her hands full simply dealing with the everyday pressures of monetary policy. Were she to step up to the deeper challenges facing the nation and the Federal Reserve Board, she could go down in history not only as the first woman to Chair the Board, but as a historic leader who recognised the much larger implications of its role and acted to help transform it into an institution concerned with a much-needed democratisation of the economy.