U.S. lawmakers gave their nod to a new Federal Reserve chair, making Janet Yellen the first woman to lead the central bank in its 100-year history. While Yellen enjoys widespread support across the political and financial spectrum, the headwinds she's facing are freezing.
It is official now. Janet Yellen is set to head the U.S. Federal Reserve, the most powerful central bank in the world, starting from next month. "The yays are 56. The nays are 26. The nomination is confirmed."
Arctic weather has delayed many flights across the U.S., leading to a significant number of absentees. Yet the lopsided margin shows how much hope and trust lawmakers have put on her, and so is the challenge to wind down the Fed’s huge balance sheet, which has been bloated to four trillion US dollars.
"She is managing the landing that we are going to have and trying to make that as smooth as possible. I can't think of another Fed Chair that has faced challenges that are as important and as big as she is facing right now," Mark Thoma, Professor of Economics at University of Oregon, says.
The outgoing Fed chairman Ben Bernanke has pumped massive liquidity into the market, most notably the 85 billion US dollar monthly bond purchase, which critics say, have inflated home prices and created investment bubbles.
"My concerns about the Fed's easy money policies and inflation led me to vote against Chairman Bernanke for his second term at the Fed. Because it appears that Miss Yellen will continue to pursue these misguided policies, I cannot in good conscience vote in favour of her confirmation," U.S. Senator Charles Grassley says.
The U.S. economy seems on a recovery track. The most recent jobless rate fell to 7 percent and the annualized economic growth revved up to 4 percent in the fourth quarter of 2013. Yellen admitted in her nomination hearing last month that the easy money policy will not stay forever and the question remains: how fast and how much will the central bank hit the brake pedal?
"She'll be judged in the future quite a bit by how she manages the exit from QE and also how well she manages once they start increasing the Federal Funds rate how well that goes, how fast they do it," Thoma says.
At least for now, she is free of scrutiny. Yellen will preside over her first Fed meeting on March 18 and 19, with global markets eagerly awaiting her first monetary policy steps as new Fed chair.
