US Senate confirms Yellen as new Fed chief
January 7, 2014, 6:19 am

The US Senate on Monday confirmed Janet Yellen to succeed Ben Bernanke as the head of the Federal Reserve.

The first woman to hold this post, Yellen will likely face continuing pressure to create the best possible conditions to increase GDP growth, boost consumer confidence and spending, keep interest rates low and reenergise investments.

During her confirmation hearings in mid-November, Yellen – who was already a powerful member of the Fed’s Open Market Committee and its Vice-Chair – told Senators that she fully backed the $85-billion stimulus package which was initiated in 2008 to minimise the impact of a global recession.

In a bid to increase liquidity (monetary supply) and promote lending – in particular when interest rates near rock-bottom levels but fail to revitalize the economy – the Fed resorted to the stimulus package, also known as quantitative easing, by flooding financial institutions with capital by buying back bonds.

In 2012, the Fed began its third phase of quantitative easing by buying back US treasury securities.

“These purchases have made a meaningful contribution to economic growth and improving the outlook,” Yellen told Senators.

But in mid-December, the Fed decided that US markets were performing favourably and that the time was right to begin a very gradual scaling back of the stimulus programme.

Citing better than expected economic indicators and the fall of the unemployment rate to 7 per cent, the US Federal Reserve on December 19 decided to scale back its quantitative easing program by $10 billion.

“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the Committee decided to modestly reduce the pace of its asset purchases,” the Fed’s policy-making Open Market Committee (FOMC) said in a statement.

Its monthly bond-buying programme will now be reduced from $85 billion to $75 billion.

FOMC also announced it could keep interest rates near zero despite falling unemployment figures.

Yellen, has always defended the quantitative easing regimen saying that it reduced unemployment and pushed down mortgage rates.

She said it was – given the current obstacles to a full economic recovery – the best option available. But she supported the taper in December.

Yellen will succeed Bernanke on February 1.

Source: Agencies