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MailTribune.com
  • Obama's pick for Fed chair known as friend to stimulus

    Janet Yellen has a history of 'dovish' policies and will likely be confirmed
  • WASHINGTON — If she becomes the next Federal Reserve chairwoman, the challenges that lie ahead for Janet Yellen will require the steely intellect and the personable style that many attribute to her.
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  • WASHINGTON — If she becomes the next Federal Reserve chairwoman, the challenges that lie ahead for Janet Yellen will require the steely intellect and the personable style that many attribute to her.
    The job as the world's most important banker comes with a daunting to-do list: deciding when to slow the Fed's stimulus, forging consensus from a fractious policy committee and calculating the effects of any economic slowdown from Washington's budget fight. That's in addition to monitoring volatile financial markets and fine-tuning the Fed's communications.
    First, though, Yellen will have to get there. She will need to overcome Washington's toxic political environment and win confirmation from the Senate to succeed Ben Bernanke when his term ends Jan. 31.
    It's almost enough to make you wonder why she would want the job.
    Yellen is widely seen as a "dove" on Fed policy. She stresses the need to use the Fed's tools to boost growth and reduce unemployment in the sluggish aftermath of the Great Recession, rather than worry about igniting future inflation.
    That view came through in her brief remarks Wednesday after President Barack Obama announced her nomination. Yellen said more needed to be done to strengthen the economy. She added, though, "We have made progress. The economy is stronger, and the financial system is sounder."
    In part for her perceived dovishiness, Yellen has been outspokenly backed by many Democrats in Congress and opposed by some Republicans.
    She wasn't Obama's first choice to lead the Fed. That was Larry Summers, a former Treasury Secretary and chief White House economic adviser who withdrew from consideration in the face of widespread opposition.
    Brian Gardner, Washington political analyst for Keefe, Bruyette & Woods, predicts that Yellen, widely respected as an academic economist and veteran policymaker, will be easily confirmed despite some Republican no votes.
    Then the hard stuff begins.
    Fed policymakers have been debating when and how to scale back their $85 billion a month in bond purchases designed to spur economic growth by reducing long-term interest rates, driving up stock prices and encouraging borrowing and spending. Yellen, in her role as Fed vice chairwoman, was a key architect of this strategy.
    Last month, the Fed surprised financial markets by deciding not to scale back its bond purchases. It concluded that that the U.S. economy wasn't yet healthy enough for the Fed to ease its stimulus even slightly. Fed officials also worried about the budget stalemate that's since led to a partial shutdown of the government and threatens to trigger a default on government debt.
    Many analysts now don't think the Fed will reduce its stimulus before next year. And with the dovish Yellen as chairman, the Fed would likely be cautious about any pullback in early 2014.
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