In the trading world, much concern has been expressed regarding President Obama’s nomination of Janet Yellen for the position of Federal Reserve Chair. Yellen’s confirmation as Fed Chairman requires Senate approval. The current Chairman, Ben Bernanke, will see his term expire on January 31, 2014. This position would arguably make Yellen the most powerful woman in finance. From an academic view, Yellen believes unemployment and inflation are inversely related. Critics claim she is more concerned with unemployment than regulating inflation.
Traditionally, the Fed’s purpose is to regulate interest rates and money supply. During the financial crises of the last few years, the Fed’s buying of mortgage-backed securities forced the Fed to invest in a specific area of the economy. In addition, the Fed’s controversial bond-buying program sought to drive down long-term interest rates, thereby spurring economic growth. Normally, such fiscal procedures are reserved for Congress. Considering the position of Fed Chair is presidentially appointed and the Fed’s actions deeply affect the economy, any change in the Fed Chair seat results in much investor speculation and action.
Presently, both Yellen and Bernanke want to keep interest rates low in order for a smooth transition and policy continuation at the central bank. Bernanke is trying to make the In contrast, Republicans view the change to be unsettling. They believe Obama may be reshaping the Financial Reserve and offering their party nothing in return. Obama is set to appoint a minimum of four of the Fed’s seven governors. These governors shape America’s monetary policy. With so much control, Democrats will be able to capitalize on supporting lower interest rates and loosening monetary policy (a so-called “dove” financial perspective). Contrarily, Republicans favor a “hawk” position, which emphasizes the use of higher interest rates to keep inflation in check. A recent Wall Street Journal analysis claimed Yellen to be the most accurate economic forecaster among 15 Fed policy makers. With Yellen’s strong professional and academic background, she appears to be one of the most qualified candidates, despite political party debate.
Do you think Yellen is a good choice?
Do you think she will rock the boat too soon?
Do you think she was selected as part of political strategy?
Let us know!