Yellen Will Leave Federal Reserve Next Year

WASHINGTON — Janet L. Yellen, chairwoman of the Federal Reserve, said on Monday that she would step down from the Fed’s board at the same time that she ends her term as chairwoman.

President Trump decided earlier this month to nominate Jerome H. Powell, a Republican who sits on the Fed’s board, as the next chairman, deciding against offering Ms. Yellen a second term. Ms. Yellen, whose term as chairwoman ends in February, could have remained on the Fed board until her term as governor expires in 2024.

Her decision to step down instead had been widely expected, though some Democrats had argued publicly and privately that she could best defend her legacy from the inside.

“I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses,” Ms. Yellen wrote Monday in a letter to President Trump announcing her decision. “I am also gratified by the substantial improvement in the economy since the crisis.”

Ms. Yellen also praised the selection of Mr. Powell as her replacement, and promised to work toward a smooth transition.

Ms. Yellen’s departure would leave the Fed with just three people on its seven-member board, which would be the fewest in the Fed’s history and could strain the board’s ability to manage the operations of the central bank. The dearth of governors also means that a majority of the votes on the Fed’s Open Market Committee, which sets monetary policy, are now held by the presidents of regional reserve banks, not political appointees. The committee consists of 12 voting members — the seven Fed governors, the president of the Federal Reserve Bank of New York and four additional Reserve Bank presidents.

The Trump administration filled one vacancy on the Fed’s board earlier this year when Mr. Trump nominated Randal K. Quarles as the vice chairman of supervision. But it has not yet nominated any candidates to fill the three current vacancies and now, with Ms. Yellen’s departure, Mr. Trump will have a fourth seat to fill.

Ms. Yellen, 71, has spent almost two decades at the Fed. President Bill Clinton named her as a governor in the mid-1990s. She returned to teach at the University of California, Berkeley, before going back to the Fed as president of the Federal Reserve Bank of San Francisco in 2004. She became vice chairwoman in 2010.

As vice chairwoman, she worked closely with the then-chairman Ben S. Bernanke on the Fed’s post-crisis stimulus campaign. She paid tribute to Mr. Bernanke in her resignation letter, writing that his “leadership during the financial crisis and its aftermath was critical to restoring the soundness of our financial system and the prosperity of our economy.”

After succeeding Mr. Bernanke in 2014, Ms. Yellen continued those efforts.

Among her most important achievements was convincing Fed officials to be patient and to repeatedly extend the stimulus campaign. She rallied her colleagues to the view that the economy had plenty of room to expand without driving up inflation. The Fed continued to hold down interest rates, and job growth continued at a pace many had regarded as unsustainable.

The unemployment rate fell to 4.1 percent in October while inflation has remained sluggish. The Fed has rarely come closer to its goals of maximizing employment and stabilizing inflation.

Andrew Levin, a Dartmouth economist who worked as an adviser to Ms. Yellen, credited her with “leading and managing a relatively large Fed committee with lots of independent voices.”

“Sometimes they call it a cacophony,” he said. “She managed to turn it into a symphony.”

Ms. Yellen drew on her background as an academic economist. As a professor at Berkeley, she wrote extensively about the mechanics of labor markets. But she broke with academic consensus when many experts underestimated the potential for job growth.

“What also counted were her common sense and her open mind,” Mr. Levin said. “That has made a material difference in people’s lives and livelihoods.”

Ms. Yellen’s focus on unemployment represented a shift for the Fed, which in the decades before the 2008 financial crisis honed a single-minded emphasis on controlling inflation.

She paid regular visits to job-training programs across the country, meeting with groups of workers to hear their stories. She also invited a coalition of unions and community groups, Fed Up, to meet with her in the Fed’s grand boardroom on the National Mall in Washington.

In one of her first public appearances as chairwoman, she went to Chicago to meet with three people struggling to find jobs, then gave a speech declaring her priorities.

“It is my hope,” she said, “that the courageous and determined working people I have told you about today, and millions more, will get the chance they deserve to build better lives.”

The Fed’s focus on unemployment raised the ire of conservative critics who worried the central bank would lose control of inflation, or that it was underwriting excessive speculation in financial markets. Those predictions have not materialized.

Ms. Yellen also emerged as a stalwart defender of the stronger financial regulations imposed after the financial crisis, particularly after President Trump took office and announced that he intended to sharply reduce regulation of the financial sector.

Yet Ms. Yellen’s successful management of the economy, and her calm and mild personal style, meant that her interactions with Republicans were largely devoid of hostility. Mr. Trump made a point of praising her even as he made her the first Fed chairman in modern times to complete a first term without receiving a second.

“Although we did not always agree on the Federal Reserve’s conduct of monetary policy, I have great respect for Chair Yellen,” Representative Jeb Hensarling, the Texas Republican who chairs the House Financial Services Committee, said in a statement on Monday. “I wish her well.”

The Trump administration did not publicly press for Ms. Yellen to step down as a governor, but her decision is in keeping with Fed tradition. The last chairman to remain on the board after losing the top job was Marriner Eccles, who was replaced as chairman in 1948 but remained on the board until 1951.

The Trump administration did ease Ms. Yellen’s exit, however, by choosing a centrist as her replacement. Mr. Powell has described the administration’s plans to reduce financial regulation as a “mixed bag,” saying that he wants to retain some of the most important stringencies imposed after the financial crisis. He has also supported the Fed’s gradual retreat from its stimulus campaign in the face of demands from some Republicans for interest rates to rise quickly.

And earlier this year Ms. Yellen lost allies when two other Fed governors appointed by President Obama, Daniel Tarullo and Stanley Fischer, resigned. That had already guaranteed Mr. Trump’s ability to appoint a majority of the Fed’s board, leaving any remaining Obama-era holdovers with little prospect of real influence.

Ms. Yellen’s term as chairwoman ends on February 3, but the exact timing of her departure depends on Mr. Powell’s confirmation progress. Although the legislative calendar is crowded with other priorities, he is not expected to face significant opposition and the Banking Committee scheduled a confirmation hearing for Nov. 28. Ms. Yellen would remain in office during any delay, saying in her letter that she would depart “immediately” once her successor was sworn in.