Congratulations to Janet Yellen. The new chair’s most important challenge, in my view, is to lead the Fed toward a more predictable, less interventionist, more rules-based monetary policy of the kind that worked well when tried, as in the 1980s, 1990s and until recently.  The sooner the Fed gets back to such a policy, the sooner the U.S. economy will begin performing well as it did in those earlier decades, which have been called the Great Moderation or the Long Boom.

In this respect, it is promising that Janet Yellen has argued that “in normal times, when the economy is buffeted by typical shocks—not the extraordinary shock resulting from the financial crisis—simple rules can come pretty close to approximating optimal policies.” But, as of a year and a half ago, she also added that “times are by no means normal now, and the simple rules that perform well under ordinary circumstances just won’t perform well…”

So, although Janet Yellen has been rationalizing the recent departure from rules-based policy, she wants to get back to rules-based policy.  In fact, she has been the most vocal advocate of such a return of any Board member including the current Chair. The sorely needed “great unwinding” will of course be difficult.  The question is when and whether she will be able to pull it off. I wish her the very best.