President Barack Obama nominated yesterday Federal Reserve vice chair Janet Yellen to succeed Ben Bernanke as chairman of the nation’s central bank, the White House announced, cnbc.com informs.
Yellen would be the first woman to head the powerful Fed, taking over at a pivotal time for the economy and the banking industry. Bernanke’s term ends in January, completing a remarkable eight-year tenure in which he helped pull the U.S. economy out of the worst financial crisis and recession since the 1930s. Under Bernanke’s leadership, the Fed created extraordinary programs after the financial crisis erupted in 2008. It lent money to banks after credit markets froze, cut its key short-term interest rate to near zero and bought trillions in bonds to lower long-term borrowing rates. Those programs are credited with helping save the U.S. banking system. Yellen emerged as the leading candidate after Lawrence Summers, a former Treasury secretary whom Obama was thought to favour, withdrew from consideration last month in the face of rising opposition. Yellen, 67, would likely continue steering Fed policy in the same direction as Bernanke. A close ally of the chairman, she has been a key architect of the Fed’s efforts under Bernanke to keep interest rates near record lows to support the economy.
As vice chair since 2010, Yellen has helped manage both the Fed’s traditional tool of short-term rates and the unconventional programs it launched to help sustain the economy after the financial crisis erupted in 2008. These include the Fed’s monthly bond purchases and its guidance to investors about the likely direction of rates.
The BBC’s chief business correspondent, Linda Yueh, says the transition from Bernanke to Yellen is likely to be “seamless” and will not have much impact, because the two already work so closely together. “I don’t think there’s going to be a radical change,” she said on Radio 4’s Today programme, adding that the changeover was unlikely to alter the timing of the Fed’s withdrawal of economic stimulus.
Global financial stability depends on Fed
When the US Federal Reserve starts to phase out its USD 85 bln a month quantitative easing programme it could spark a rapid rise in global interest rates and “fire sales” of assets across the world’s financial markets, according to the International Monetary Fund, theguardian.com informs.
In the latest edition of its twice-yearly Global Financial Stability Report, the IMF said markets have become riskier over the past six months as investors have begun to adjust to the prospect of an end to QE in the US. Its analysts laid out a relatively benign scenario, in which market interest rates adjust gradually to a world without the flow of cheap money from the Fed.