Yellen nomination boosts stock markets

“She’s not going to go her own way. She will look to her committee; she’s going to look to her staff and try to find a point of view a lot of people can sign onto. That’s good thing.”

If confirmed by the Senate, Yellen will likely be expected to handle the bulk of the Fed’s tapering of its massive monetary stimulus that probably won’t begin now until next year. Bernanke’s term is up Jan. 31. 

While Mankiw said she may be a little more dovish on the Fed’s dual mandate — focusing on unemployment over inflation — than Ben Bernanke she has backed the central bank’s aggressive approach of $85 billion in monthly monetary stimulus, which is designed to bolster the fragile economy.

“Janet has been on board with that and maybe should have done more in terms of forward guidance,” he said. 

“But she is basically very similar and they come from a similar intellectual tradition. Mainstream monetary economics. There is nothing crazy coming out of a Yellen Fed.”

Mankiw said that since inflation hasn’t been much of a concern the Fed has turned its attention to boosting the job market.  

But he expects Yellen’s focus to shift as the economy changes.

“I see no reason to think she wouldn’t change,” he said. 

“She has been committed to the two percent inflation target and hasn’t been open to suggestion that inflation should rise above that,” he said. 

“I expect her to be true to her word and when inflation looks like it’s going to be a problem, she will respond accordingly.”