Update » Federal Reserve Vice Chair Janet Yellen says more needs to be done to strengthen the U.S. economy. She made her remarks as Obama nominated her to succeed Ben Bernanke as chair of the nation’s central bank.
Yellen said the past six years have been tumultuous for the economy and challenging for many Americans. She said that while the recovery is not complete, quote, "We have made progress, the economy is stronger and the financial system is sounder."
She said considerable credit for the recovery goes to Bernanke. She said it was a privilege to serve with him and learn from him.
Bernanke’s term ends Jan. 31. If confirmed by the Senate, Yellen would be the first woman to head the Federal Reserve.
Washington » The challenges for Janet Yellen if she becomes the next Federal Reserve chair will require both the steely intellect and the personable style that many attribute to her.
Deciding when to slow the Fed’s economic stimulus. Forging consensus from a fractious policy committee. Calculating the effects of any economic slowdown from Washington’s budget fight. Facing volatile financial markets. Absorbing new members at the Fed.
First, though, Yellen will have to get there: She’ll need to overcome Washington’s toxic political environment and win confirmation from the Senate.
It’s almost enough to make you wonder why she’d 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.
In part for that reason, she’s been outspokenly backed by many Democrats in Congress and opposed by some Republicans.
She wasn’t President Barack 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 $85 billion a month in bond purchases. The bond purchases are meant to spur economic growth by reducing long-term interest rates, driving up stock prices and encouraging borrowing and spending. Yellen 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.
For now, there’s another problem, too: There isn’t much official economic data to go on. The shutdown that began Oct. 1 forced the Labor Department to cancel its all-important jobs report for September. It’s still unclear when the jobs report will come out.
The choice of Yellen to lead the Fed also comes amid worry and uncertainty about how much damage the shutdown might cause a fragile U.S. economy. Graver yet is fear that lawmakers won’t raise the government’s borrowing limit this month. If they don’t, the U.S government could eventually default on its debt. Another recession and financial crisis could follow.
As chairman of the Fed, an independent agency that steers clear of Congress’ affairs, Yellen can be little more than a spectator.
"There’s really nothing she could do about the debt ceiling," notes Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.Next Page >
Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.