Transcripts show Yellen was prescient

WASHINGTON - Janet Yellen was among the most influential members of the Federal Reserve board in 2009, correctly predicting a recovery fraught with misery for American households from her perch at the helm of the San Francisco Fed.

Yellen, now chair of the Fed, was a voting member of the Federal Open Market Committee. Transcripts of meetings released Wednesday showed her warning that the year would be painful and grim, and other officials agreeing with her analysis.

"The economic outlook remains fraught with peril. I am particularly concerned about the labor market, where the data are appalling," she told the committee at its April meeting. "Unfortunately, the road ahead is littered with headlines of defaults, bankruptcies, and rising unemployment."

At that meeting, she predicted that the jobless rate would rise as high as 9.6 percent, delivering a more pessimistic forecast than the Fed staff's prediction. Yellen's estimate proved close to the 10 percent peak reached in October of that year.

Not all the Fed officials were as successful in forecasting. Then-Philadelphia Fed president Charles Plosser expressed concern at the April meeting about rising inflation, and pressed the central bank to begin raising rates by late 2009 or early 2010.

"We cannot keep the funds rate at zero for the next three years and expect to achieve anything close to our inflation objective," Plosser said.

The Fed still has not raised its short-term interest rate, and inflation has yet to become a problem, running below the Fed's 2 percent target.

Yellen presented her views in discussion joined by Fed board members and reserve bank presidents. It is unusual for Fed presidents to have a lot of influence on policy decisions. That has to be earned by the clarity and force of argument and the accuracy of forecasts.

"I always found her presentations to be too insightful and too clear," said former Fed Governor Laurence Meyer, who served with Yellen in the early 1990s on the Fed board. "If she went first, I had nothing to say."

While the Fed's 12 regional reserve bank presidents bring a diversity of views to the policy discussion, the preponderance of power on the FOMC rests in Washington. The presidents hold five votes at any one time; the Board of Governors in the capital holds seven when at full strength, with the chairman as first among equals.

In March 2009, Yellen observed that "people appear to be breaking into their piggy banks to make ends meet," noting that coin inventories were rising at the San Francisco Fed. "We're in the midst of a very severe recession - it's unlikely to end any time soon," she said.

At that meeting, she voted with the rest of the committee to boost purchases of mortgage-backed securities to $1.25 trillion and of housing-agency debt to $200 billion, and to add $300 billion of Treasury purchases.