Janet Yellen is to take the helm of a US Federal Reserve facing a significantly different economic landscape than the one that dominated Fed Chairman Ben Bernanke’s tenure, confronting her with different decisions as well.
Bernanke’s eight years leading the Fed were largely consumed with the Great Recession and his efforts to cure it by pushing down interest rates and pumping cash into the economy. Many economists think Yellen’s big challenge will be deciding how to ease off some of those very policies, which Bernanke took with Yellen’s support.
“Circumstances may demand more rapid tightening than people are expecting,” said Bill Cheney, chief economist for John Hancock Financial Services, who envisions a growing economy this year.
Photo: AFP
He contrasted that with Bernanke, who he said had to decide “when to step on the gas pedal and how hard” as the US economy recovered weakly from the recession.
The US Senate confirmed Yellen, a long-time Fed official and economist at the University of California at Berkeley, by a 56-26 vote on Monday. Supporting her were all 45 voting Democrats and 11 Republicans, while all opposing votes came from Republicans. Many senators missed the vote because frigid weather canceled numerous airline flights.
Yellen begins her four-year term on Feb. 1, when Bernanke steps down. She has been Fed vice chair since 2010.
Nominated by US President Barack Obama to the top job in October last year, Yellen comes to the post after a career in which she has focused in part on unemployment and its causes.
Obama and congressional Democrats lauded her concerns for workers on Monday.
In a written statement, Obama said Yellen’s approval means “the American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families.”
Many Republicans were less enthusiastic. US Senator Charles Grassley said that a continuation of the Fed’s easy money policies “risks fueling an economic bubble and even hyper-inflation,” which he said could cause “real and lasting damage to our economy.”
The Fed last month announced that the labor market has improved enough that it will begin reducing its US$85 billion in monthly bond purchases, starting with a US$10 billion reduction this month. It has pushed that money into the economy to try keeping long-term interest rates low.
Yellen will face questions about how to manage that process. She also will have to decide when and how to ease off short-term interest rates, which the Fed has kept near zero since December 2008.
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