Janet Yellen: First Woman Chair of the U.S. Federal Reserve

Janet Yellen has just been sworn in as the new chair of the U.S. Central Bank, the Federal Reserve. She is replacing Ben Bernanke, who will be joining the Economics Studies at the Hutchins Center on Fiscal and Monetary Policy of the Brookings Institution. Ms. Yellen is the first woman to hold this top-level position in the 100-year history of the bank. It is not Women’s Month yet. That would be next month. But it is great that more women are holding top positions today, a reward for their hard work, their integrity and their intelligence.

Not ready to retire yet

Ms. Yellen is 67 years old. Most people retire at age 65 or earlier. For three years she has been the deputy of Mr. Bernanke so she is not a complete novice in the job. She will serve a four-year term as the chair of the Federal Reserve. She swore her oath to Governor Daniel K. Tarullo.

Mighty task ahead

Janet Yellen is a highly-respected economist. In her new job as head of the U.S. Federal Reserve Bank, the management of the tail-end of the bond-buying stimulus program of the bank will be her main task. And she will have to do it without affecting the recovering economy of the United States.

The tapering of the $85 billion-a-month QE (Quantitative Easing) has already created unrest in the rising financial markets, so her early days on the job will definitely be very busy. The U.S. interest rates were kept low by the QE, which led to big U.S. cash outflow to other currencies, because it helped investors get better returns outside the country.

Better economy

The U.S. economy is in a better shape today than when Mr. Bernanke took office. His tenure as Federal Bank chief was spent initiating and managing several finance program mixes to help rejuvenate lending and boost the country’s economy and financial system.

The bank is beginning to gently ease back its huge economic support as Ms. Yellen begins her tenure. Just last week another $10 billion reduction was approved, reducing to $65 billion the monthly bond purchases. With the continuing improvement of the economy, the Fed bank officials are likely to continue the bond purchase reduction throughout 2014.

Balancing act

The easing of the QE requires expert maneuvering. The move has to be balanced. If the bank acts too fast in its withdrawal of the stimulus, it could raise interest rates. On the other hand, if the bank moves slowly to taper the support, there is a risk of bubbles in stocks, assets and real estate being created, which could burst.

Emerging markets such as Brazil, India and Turkey have greatly benefited from the reserve bank’s bond buying program through the investments American companies made in these countries. The high probability of U.S. rates getting higher have raised concerns in the global markets as this means that investor money will be flowing back to the U.S.

Janet Yellen will be attending her first Federal Bank meeting as chair in mid-March after which she is scheduled to hold a news conference. She will deliver the bank’s economic outlook and rates handling report before Congress next week.

Photo credit: Taken by United States Federal Reserve under Creative Commons Attribution-Share Alike 3.0 Unported License.