Although the exact relationship between the US Federal Reserve’s commitment to full employment and its Congressional mandate to achieve this, little evidence has been provided to demonstrate how this happens.

Yellen’s plans for community support were spelled out in the first big trip and speech after her appointment.   A recent New Yorker article suggests how deep the commitment of the new Fed chair is to jobs, but does not describe how she plans to help matters in a beleaguered US labor market.

Here is a synopsis of the points made about jobs in the article by Nicholas Lemann. Both Yellen and her husband George Akerlof (a Nobel-prizewinning economist) grew up in families where everyone wanted to work hard and at times could not find a job.  She is fierce in her determination to see that wiling workers can find jobs. In the 1990s as a Fed governor, when she thought she had made a dent on a Greenspan position, she said to another governor:  “I think we might have saved five thousand jobs.”  Now she might save a million or even two.

How she proposes to do this is evident on a trip to Chicago in late March.  Addressing a community on Chicago’s beleaguered South Side, she said the following:  “The Fed supports the work you do in communities because you make a difference. You help ensure that credit is available for families to buy homes and for small businesses to expand. Your organizations sponsor programs that help make communities safer and families healthier and more financially secure. One of the most important things you do is to help people meet the demands of finding a job in what remains a challenging economy. And that help is crucial, but I also believe it can’t succeed without two other things.”  She goes on to ask for grit and also community help in locating jobs.  She points out that low interest rates help people buy homes, for businesses to expand.  “We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery.”

In sum, Yellen clearly is a passionate jobs’ advocate, but do the Fed’s policies really count in the jobs’ figures?  Why has the Fed become the prime force in setting fiscal policy?  Does a Fed Chairman, even the most brilliant one, really have the clout to get banks to help out?  Can a mature person with undeveloped political skills deal with the wolves of Wall Street?  This is Yellen’s challenge and we shall see.

Yellen Chicago Speech on the Job Market