Larry Kudlow
The greatest central banker in my professional lifetime was Paul Volcker. His signal achievement was bringing down the inflation rate from roughly 15 percent to about 3 percent more than three decades ago. The simplest way to look at the economic evils of runaway prices is to think of inflation as a tax hike -- on consumers, savers, investors, corporate profits, capital gains and so on. One humongous tax hike. And it was the myriad tax-hike effects of high inflation that wrecked the American economy in the 1970s.

But Volcker turned that around, and he did so using a rules-based approach to slaying price hikes. He was an old fashioned central banker who still believed the dollar should be as good as gold. And he carefully watched market-based signals like gold, commodities and the exchange value of the dollar to let him know if he was going down the right road.

Ronald Reagan gave Volcker the ground to stand on, Volcker implemented his rules-based policy and a bleak inflation outlook was vanquished. In fact, it was Reagan's supply-side tax cuts in combination with Volcker's hard-money policies that launched a 25-year economic boom. Nearly 50 million new jobs were created while economic growth averaged about 3.5 percent a year. That boom also financed a U.S. victory over Soviet communism and restored American leadership worldwide.

I reflect on all this as Janet Yellen gets ready to take over at the Federal Reserve. The economic issues are very different today than they were in the '70s and early '80s. Inflation is not the problem. But high unemployment and slow growth are. The U.S. economy is being held back.

So, how will Yellen handle this? And how will she renormalize an expansive Federal Reserve balance sheet and permit interest rates to rise back to historic norms?

Tongue-in-cheek, I've been calling Yellen the Empress of the Doves. But I do so with respect rather than condemnation. The truth is, Fed chairmen are like Supreme Court justices. You never really know what they're going to do until they actually do it. But Yellen will be dovish for a good long while. And after that, Fed operations must change.

My concern with Ms. Yellen is whether she will abide by clear monetary rules as the central bank puts an end to extraordinary quantitative easing and related interventions in the financial markets. Can Yellen approach her monetary challenge in the disciplined way that Volcker approached his years ago?

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.