In a 56-26 US Senate vote on 6 January, Janet Yellen, former vice-chair of the Federal Reserve Board (FRB), was confirmed as the next Fed chair. Yellen, who is the first woman to lead the Fed, will take office following current Fed chairman Ben Bernanke’s final day in the post on 31 January.
On the two issues most-closely tracked by Fed watchers – the federal funds rate and large-scale asset purchases – Yellen’s Fed chair ascension coincides with initial signs of an improved US economic outlook and political pressure to wind down monetary tactics. Her appointment comes as simmering expectations about eventual short-term interest rate hikes and a scaling-down of the Fed’s current US$4 trillion bond-buying programme continue to leave markets in anticipation.
Last month, the Federal Open-Market Committee (FOMC), tasked with setting interest rates and managing the central bank’s balance-sheet, announced plans for
a modest reduction in monthly asset purchases
of government and mortgage-backed securities.
In his final public remarks last week, Bernanke underscored the Fed’s assurance to low US interest rates, as necessary. “FOMC’s decision to modestly reduce the pace of asset purchases,” he said, “did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed.”
Having led the Fed amid an unprecedented financial market collapse meriting extraordinary monetary action, the backdrop of Bernanke’s legacy sets the stage for Yellen’s tenure. Moreover, Bernanke’s push for a more transparent central bank than that led by his predecessors puts considerable weight on the role of public communications at the Fed.
As Fed vice-chair, Yellen has been an influential player in recent Fed policy decisions. Before joining the Fed’s board of governors in the 1990s and serving in president Clinton’s council of economic advisors, Yellen was a professor of economics at the University of California at Berkley. From 2004 until her tenure as Fed vice-chairperson, she served as president of Federal Reserve Bank of San Francisco.
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