The first female chair of the U.S. Federal Reserve begins her term in February and leads her first meeting in March. Janet Yellen has won Senate approval in a 56-26 vote. Yellen’s appointment is ground-breaking in the central bank’s 100 years of existence. The top two priorities on Yellen’s list in 2014 are unemployment and inflation.
Yellen has helped craft Ben Bernanke’s pro-growth economic plan, gaining her the label of “dove,” focused on job creation and low interest rates. The efforts prevented the country from falling into a deep recession after the 2008 housing market crisis. Unemployment has been reduced to 7%. The financial markets ended higher, fueled by low interest rates in December 2013.
The Fed announced a pullback, or tapering, of its $85 billion monthly stimulus into the markets. $10 billion will be removed each month until the quantitative easing program ends later this year. Therefore, January gets $75 billion in bond purchases, and the reductions continue from there.
Bankrate.com senior financial analyst Greg McBride believes that market numbers point skyward. He told Fox Business, “I think the market will end higher than it started but it will be a bumpy ride. The market is going to have to recalibrate from the impetus of easy money and return to a focus on fundamentals, namely top line revenue growth and profit growth.”
Republican Senator Chuck Grassley raises concerns about how the Fed plans to taper. Grassley believes Yellen’s lack of presenting a roll out on the pullback program “spooks investors.” The Iowa Senator calls the Fed’s money policy easy, in which the stock market has become so dependent.
Yellen’s opponents predict a bubble forming in the stock and housing markets. The removal of the stimulus program could pop that bubble, driving market prices down and leading to soaring interest rates. The Fed aims to keep the short-term interest rate near zero, even when unemployment dips to 6.5 percent.
Most analysts are yay-sayers of Yellen’s policies on unemployment and inflation, smoothing her transition into first female chair. Yellen’s economic leadership has a strong track record. She carries forward views crafted during the last four years as vice chair under Bernanke. The accomplished economist has been an active member of the Federal Reserve Bank system for 36 years.
Listening and politeness are cherished traits among Yellen’s colleagues. Berkeley professor and Haas School of Business colleague James Wilcox told TIME, “She can get at the strengths and weaknesses of someone’s arguments so quickly, but so politely. She’s got that ‘iron fist in a velvet glove’ quality.”
Yellen plans to land that iron fist on bank reform. Former Vice Chairman of the Board of Governors of the Federal Reserve System, Donald Kohn, thinks this is possible with support from a key group- the Federal Reserve governors. He notes many are becoming independent. Kohn claims Yellen’s ability to ask questions and listen to arguments should assist her efforts in reforming the bank system.
President Barack Obama praises his nominee, stating in a written document, “The American people will have a fierce champion” leading them. “I am confident that Janet will stand up for American workers, protect consumers, foster the stability of our financial system and help keep our economy growing for years to come.”
Holding the reigns as Fed chairwoman, Yellen looks for signs of growth or slowdowns relative to unemployment and inflation. The new Fed chair will adjust quantitative easing accordingly.
By Teria Seah