What You Need to Know with Janet Yellen Leading the Fed

Look for a little bit of a 'taper', but no major moves

   

A few weeks ago, Janet Yellen was confirmed by the Senate as chairwoman of the Federal Reserve System once Ben Bernanke steps down.

As you’ve probably noticed, the person at the helm of America’s central bank has a staggering about of influence over global financial markets. Janet Yellen is about to have a hand in everything from the benchmark interest rate to investor confidence to the jobs picture, so let’s take a moment to get to know her.

The first thing you need to know is that Janet Yellen is a dove, which generally means that she prefers keeping rates low to spur economic growth, even if it encourages inflation. This is important because she’s widely seen as an accommodative person. Yellen would be more resistant to stopping the Fed’s accommodative policies that Wall Street has gotten so addicted to. So many expect that the Fed would pump more under Yellen than under a hawk.

Her comments in the past have sparked the market and helped to propel it to new highs. For example, recently, she proclaimed that with inflation low and unemployment high that “it is entirely appropriate for progress in attaining maximum employment to take center stage.”

As to be expected, she has an extensive CV. From 2004 to 2010 she was the President and CEO of the San Francisco Fed. So she is keenly aware that California, Nevada and other states in her former Fed district have lingering unemployment problems. She was then promoted to Vice Chairman of the Fed in 2010 and has acted in this role ever since. She’s obviously a very capable economist who has a lot of fans, particularly among progressive and women’s groups.

So while the Fed is tapering a bit in terms of its asset purchases as the overall economy improves and the Fed’s Beige Book survey of its 12 districts were very positive recently thanks to steady manufacturing growth, rising consumer spending and improving real estate markets. Eight of the 12 Fed districts also reported that hiring is increasing, which is significant, due to the Fed’s unemployment mandate.

Overall, due the upbeat tone in the Beige Book, which is used for the upcoming FOMC meeting, I suspect that the Fed may decide to taper a bit more, to the tune of $20 billion less per month in quantitative easing, instead of the $10 billion cut that it recently made.

All in all, however, the low interest rates that we’ve enjoyed are here to stay, and that means that the only place to get yield is the stock market. So buckle up and get ready for another prosperous year in 2014!


Article printed from InvestorPlace Media, http://investorplace.com/2014/01/janet-yellen-fed/.

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