Janet Yellen one vote away from leading the Federal Reserve - Main Line

A Senate panel has advanced Janet Yellen’s nomination to lead the Federal Reserve, setting up a final vote in the full Senate. The timing of a Senate vote isn’t clear, but Yellen is widely expected to win confirmation.

The Senate Banking Committee approved the nomination 14-8. All the no votes came from Republicans, several of whom say they object to the Fed’s aggressive low interest-rate policies to support the economy.

Yellen was nominated by President Barack Obama in October to succeed Ben Bernanke, whose second four-year term as chairman will end Jan. 31. Some senators have said they plan to hold up Yellen’s nomination as leverage on other matters. That tactic is likely to delay but not derail Yellen’s confirmation.

Yellen would be the first woman to lead the Fed and the first Democrat to do so since Paul Volcker stepped down in 1987. She made clear at the committee’s hearing last week that she’s prepared to support the Fed’s extraordinary efforts to bolster the economy until there are clear signs of a sustained rebound and further improvement in the job market.

As a result, the Fed’s low-rate policies are expected to continue under her leadership. Yellen has been a close Bernanke ally, first as president of the San Francisco regional Fed bank, and then since 2010 as vice chair of the Fed’s board in Washington.

Yellen and Bernanke are both considered “doves” — Fed officials who stress the need to fight unemployment during periods of economic weakness. By contrast, “hawks” tend to worry more about inflation that could arise from the Fed’s policymaking.

In the view of Fed watchers, Yellen’s testimony last week solidified her dovish reputation. She maintained that the Fed’s bond buying program has successfully supported the economy by keeping long-term borrowing rates. And she minimized concerns that critics have raised about the bond purchases.

The Fed is adding to its investment portfolio with $85 billion a month in bond purchases. Its holdings are nearing $4 trillion, more than four times their level before the financial crisis struck in the fall of 2008.

Republican critics say they fear that by flooding the financial system with money, the Fed has inflated stock and real estate prices and could create asset bubbles that could pop with dangerous consequences for the economy. Continued...

A Senate panel has advanced Janet Yellen’s nomination to lead the Federal Reserve, setting up a final vote in the full Senate. The timing of a Senate vote isn’t clear, but Yellen is widely expected to win confirmation.

The Senate Banking Committee approved the nomination 14-8. All the no votes came from Republicans, several of whom say they object to the Fed’s aggressive low interest-rate policies to support the economy.

Yellen was nominated by President Barack Obama in October to succeed Ben Bernanke, whose second four-year term as chairman will end Jan. 31.

Some senators have said they plan to hold up Yellen’s nomination as leverage on other matters. That tactic is likely to delay but not derail Yellen’s confirmation.

Yellen would be the first woman to lead the Fed and the first Democrat to do so since Paul Volcker stepped down in 1987. She made clear at the committee’s hearing last week that she’s prepared to support the Fed’s extraordinary efforts to bolster the economy until there are clear signs of a sustained rebound and further improvement in the job market.

As a result, the Fed’s low-rate policies are expected to continue under her leadership. Yellen has been a close Bernanke ally, first as president of the San Francisco regional Fed bank, and then since 2010 as vice chair of the Fed’s board in Washington.

Yellen and Bernanke are both considered “doves” — Fed officials who stress the need to fight unemployment during periods of economic weakness. By contrast, “hawks” tend to worry more about inflation that could arise from the Fed’s policymaking.

In the view of Fed watchers, Yellen’s testimony last week solidified her dovish reputation. She maintained that the Fed’s bond buying program has successfully supported the economy by keeping long-term borrowing rates. And she minimized concerns that critics have raised about the bond purchases.

Republican critics say they fear that by flooding the financial system with money, the Fed has inflated stock and real estate prices and could create asset bubbles that could pop with dangerous consequences for the economy. Some say they also worry that the Fed’s eventual unwinding of its investment holdings will unsettle financial markets, sending stock prices falling and interest rates rising and threatening the economic recovery.

Sen. Mike Crapo, R-Idaho, said before Thursday’s vote that he would oppose her because of his disapproval of the Fed’s easy money policies.

Heritage Action Group opposes Yellen

The conservative group Heritage Action -- the political arm of the Heritage Foundation -- announced Monday that it will oppose Janet Yellen's nomination as Federal Reserve chairwoman and will make it a "key vote" by which it will score members' conservatism.

Heritage has said it fears the Fed has become more political as it has taken on a more active role following the recent financial crisis and subsequent legislation ramping up oversight on the banks.

Yellen is expected to be  confirmed and got the support of three GOP senators in the Senate Banking Committee last week.

She did earn the opposition of one Democrat -- Sen. Joe Manchin (D-W.Va.) -- but needs only 50 votes after Senate Democrats last week voted to adjust the threshold for presidential nominees.

Janet Yellen nomination approved by banking panel

The Senate Banking Committee on a strong bipartisan vote of 14 to 8 Thursday approved the nomination of Federal Reserve Vice Chairman Janet Yellen to become the next head of the central bank.

Ms. Yellen would be the first woman chairman of the Fed in its 100-year history. 

“Dr. Yellen has the experience and intellect that is necessary to lead our central bank,” said Sen. Heidi Heitkamp, North Dakota Democrat and one of the many Democrats on the committee who enthusiastically supported the nomination. “Today’s bipartisan vote reinforces the strong support for Dr. Yellen’s nomination and helps propel her toward a successful vote by the full Senate. 

The support of several committee Republicans came as somewhat of a surprise, since most are critical of the Fed’s easy money policies under current Chairman Ben S. Bernanke, policies Ms. Yellen has pledged to continue.

Still, her overwhelmingly strong qualifications — with many of years of experience in the top ranks of economic policy both at the Fed and the White House — persuaded some that she would be a good choice for what has been called the nation’s second most powerful office.

“I would prefer to see someone who held a more modest view regarding the limits of monetary policy on our economy,” said Sen. Bob Corker, Tennessee Republican and one GOP senator who voted for Ms. Yellen.

After talking with the nominee, Mr. Corker said he thinks Ms. Yellen understood the dangers of holding interest rates too low for too long, and will move as quickly as she can to normalize rates when the economy is in full recovery.

“In the end, I do believe she has the qualifications necessary to be the Fed chairman,” he said.

Mr. Corker was joined by committee Republicans Sens. Tom Coburn of Oklahoma and Mark Kirk of Illinois in voting for Ms. Yellen. Sen. Joe Manchin III, West Virginia Democrat, was the only Democrat on the panel who opposed her.

Janet Yellen is right for Fed

She seems to have a knack for knowing when to put the Fed's foot on the pedal and when to apply the brakes.

No one is better positioned than Yellen to know when and how to pull back and allow rates to rise to their natural levels. She did very well in the financial crisis. And she should do well in its aftermath.

via - USA Today

Janet Yellen: 5 Things to Know About the Next Most Powerful Woman in the World - People Magazine

Janet Yellen is on the verge of becoming one of the most powerful women in the world.

Yellen, President Obama's choice for the next Federal Reserve chair, appeared in front of the Senate Banking Committee Thursday in the first of her confirmation hearings to lead the U.S. central bank. Here are five must-know facts about the Brooklyn-born economist.

• She was an early warner of the dangers of the 2007 credit crunch. "[Yellen] had sounded the alarm bell early about the housing market bubble and excesses in the financial markets before the recession," Obama said in his speech introducing her as his nominee. "She calls it like she sees it."

• She's more concerned with jobs than inflation. The Federal Reserve has two main goals, which are often in conflict: prevent inflation and lower unemployment. Right now, despite Fed efforts to pump money into the economy, unemployment is high and inflation is low, a reverse of conventional wisdom. Yellen is on record saying she would accept more inflation – up to a point – if it came alongside a drop in the unemployment rate.

• She's already faced sexist media coverage. Before Yellen was an official nominee, a "subtle, sexist whispering campaign" spread rumors that she wasn't tough enough for the job. Even during her confirmation hearings, congressional newspaper Roll Call published a post slamming her for wearing the same suit twice in a six-week period.

• Her husband was a stay-at-home dad. When Yellen accepted a job leading President Clinton's Council of Economic Advisers in 1997, her husband George Akerlof took a leave of absence in order to manage their household. It doesn't appear to have impacted his career – he won the Nobel Prize in economics a few years later.

• She's a jogger. Like fellow Beltway bigwigs George W. Bush and Paul Ryan, Yellen is a distance runner. In 2004, she ran a half-marathon at age 57, finishing in just over three hours.

Janet Yellen Shames Congress For Austerity, Being Terrible - Huffington Post

"Fiscal policy has been working at cross purposes to monetary policy. Some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and from demand, making it harder for the Fed to get the economy moving, making our task more difficult."

"We are worried about a fragile recovery, and a more supportive fiscal policy, or one that at least had less drag, that did no harm, would make life easier," she added later.

"This is an extremely difficult and to my mind very worrisome problem," Yellen said of inequality.

 

Janet Yellen talking points

The president nominated Janet Yellen, a friend and former colleague, to be the next chairman of the Federal Reserve. I expect she will marshal her strong intellect, meticulous preparation and ample experience to lead the central bank successfully.

In the coming weeks and months, financial-market participants will try to gauge whether the change in personnel at the Fed means a change in policy. In particular, they will seek to divine whether Ms. Yellen's views on quantitative easing will lead to still more asset purchases and a longer period of near-zero interest rates.

This line of inquiry is understandable, but the fate of monetary policy and the economy is about much more. The critical issues go to the very remit of the Fed, the efficacy of its tools, its rightful place in government, and its role in the global economy. Allow me to highlight—and then question—some of the prevailing wisdom at the basis of current Fed policy:

• Quantitative easing is nothing but the normal conduct of monetary policy at the zero-lower-bound of interest rates. Lowering short-term rates to bolster economic growth is a traditional tool of central banking. But QE is qualitatively different. The purchase of long-term assets from the U.S. Treasury to achieve negative real interest rates is extraordinary, an unprecedented change in practice since the Treasury-Fed Accord of 1951.

The Fed is directly influencing the price of long-term Treasurys—the most important asset in the world, the predicate from which virtually all investment decisions are judged. Earlier this year the notion that the Fed might modestly taper its purchases drove significant upheaval across financial markets. This episode should engender humility on all sides. It should also correct the misimpression that QE is anything other than an untested, incomplete experiment.

• The absence of higher inflation is sufficient license for the Fed to continue its present course. Low measured inflation and anchored inflationary expectations should only begin the discussion about the wisdom of Fed policy, not least because of the long and variable lags between monetary interventions and their effects on the economy. The most pronounced risk of QE is not an outbreak of hyperinflation. Rather, long periods of free money and subsidized credit are associated with significant capital misallocation and malinvestment—which do not augur well for long-term growth or financial stability.

• The Fed's exit from extraordinary monetary accommodation is about having the tools to drain excess liquidity. Market participants do not doubt the Fed's capabilities as an expert financial plumber. But the foremost attributes needed by the Fed to end its extraordinary interventions and, ultimately, to raise interest rates, are courage and conviction. The Fed has been roundly criticized for providing candy to spur markets higher. Consider the challenge when a steady diet of spinach is on offer.

• The conduct of monetary policy should take the rest of Washington's macroeconomic policies as given. In normal times, central bankers do just that. But these are not normal times.

The administration and Congress are unwilling or unable to agree on tax and spending priorities, or long-term structural reforms. They avoid making tough choices, confident the Fed's asset purchases will ride to the rescue. In short, the central bank has become the default provider of aggregate demand. But the more the Fed acts, the more it allows elected representatives to stay on the sidelines. The Fed's weak tea crowds out stronger policy measures that can only be taken by elected officials. Nobel laureate economist Tom Sargent has it right: "Monetary policy cannot be coherent unless fiscal policy is."

• Highly accommodative monetary policy through QE provides broad support to the economy. Most do not question the Fed's good intentions, but its policies have winners and losers, which should be acknowledged forthrightly.

The Fed buys mortgage-backed securities, thereby providing a direct boost to balance sheet wealth of existing homeowners to the detriment of renters and prospective future homeowners. The Fed buys long-term Treasurys to suppress yields and push investors into riskier assets, thereby boosting U.S. stocks.

The immediate beneficiaries: well-to-do households and established firms with larger balance sheets, larger risk appetites, and access to low-cost credit. The benefits to workers and retirees with significant fixed obligations are far more attenuated. The plodding improvement in the labor markets offers little solace.

• The Fed makes domestic decisions for the domestic economy. Yes, but the U.S. is the linchpin of an integrated global economy. Fed-induced liquidity spreads to the rest of the world through trade and banking channels, capital and investment flows, and financial-market arbitrage. Aggressive easing by the Fed can be contagious, inclining other central banks to ease as well to stay competitive. The privilege of having the dollar as the world's reserve currency demands a broad view of global economic and financial-market developments. Otherwise, this privilege could be squandered.

• "Forward guidance" is a new, independent tool at the vanguard of central bank policy-making. Since QE began, Fed policy makers have tried to explain that asset purchases and interest rates are different. Hence their refrain that tapering is not tightening, and that very low interest rates will continue after QE. Investors do not agree. Once the Fed begins to wind down its asset purchases, these market participants are likely to reassert their views with considerable force.

Recently, the Fed has elevated forward guidance as a means of persuading investors that it will indeed keep interest rates exceptionally low even after QE. Forward guidance is intended to explain how the central bank will react to incoming data. Fed projections for example, may show below-target inflation and a residual output gap justifying very low interest rates several years from now. But words are not equal to concrete policy action. And the Fed hasn't received many awards for prescience in recent years.

• Transparency of the central bank is an abiding virtue in the conduct of policy. Full disclosure of its balance sheet and operations is essential to the Federal Reserve's democratic legitimacy. But transparency in communications about future policy is not a virtue unto itself. The highest virtue is getting policy right. Given manifest uncertainties about the state of the economy, oversharing policy deliberations is not useful if markets are led astray, or if public commitments reduce policy makers' flexibility to call things the way they see them.

The Fed is a powerful institution, but its powers are neither unilateral nor unbounded. The president has nominated a person with a well-deserved reputation for probity and good judgment. The period ahead will demand these qualities in no small measure.

Can Janet Yellen stop QE ?

Benjamin Franklin once said, “Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”  For the new Fed Chair,  Janet Yellen, that should come as a disturbing reality considering that she has been handed a Federal Reserve and Global Economy that is dependent on the very bad habit of Quantitative Easing (Q.E.).

In fact, her situation reminds me of the Hans Christian Andersen story, The Emperor’s New Clothes.  As the story goes:

There once was an emperor who only cared about his clothes and about showing them off. One day a couple swindlers stopped by to say they could make the finest suit of clothes from the most beautiful materials. This cloth, they said, also had the special capability in that it would be invisible to anyone who was either stupid or unfit for his position.

Being a bit nervous about whether he himself would be able to see the cloth, the emperor first sent his trusted advisors to see it. Of course, neither could see the actual cloth but wouldn’t admit it so, instead, they praised it. The townspeople had also heard of this magnificent magical cloth and, naturally, were curious to learn which of their neighbors were unwise and unfit.

Finally, the emperor dressed in his new clothes for a procession through town, unwilling to admit that he was too stubborn to see what he, in fact, was not wearing.  He was simply afraid that others would think him too stupid and, thus, unfit to rule.

Of course, all the townspeople wildly praised the emperor’s splendid new clothes, afraid to admit that they could not see them.  At last, a small child spoke up, “But he has nothing on at all”!  This was whispered from person to person until everyone in the crowd was shouting that the emperor had nothing on. The emperor heard it and knew that they were correct but, with head held high, he finished the procession nonetheless.

Throughout this year, I haven’t been shy about my fears and concerns as they relate to the impact that Quantitative Easing is having on the markets.  I continue to feel the markets have been artificially inflated by easy monetary policy that simply isn’t sustainable.  In this case, the markets are being adorned with beautiful fabrics of money that are not only skin deep, but people are also afraid to admit they can’t see the benefit for fear of being seen as unwise or unfit. 

Unfortunately, I believe that we are only half-way through the story right now.   Advisors are still being sent to check out the material and conditions, returning with economic report after report, that the linens are fine and suitable for wearing.  The real test however, will come when we have to remove the Quantitative Easing and the economy is forced to parade down the street, naked.

This last point is important because investors need to understand that their retirement accounts real measure and their true self-worth will be known when Q.E. stops and our country is faced with the reality of as much as a $5 trillion dollar Fed Balance Sheet in return for some see-through economic stimulus.   

Waiting on strong recovery

"A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases"

US Economy stronger now

In her opening remarks, Yellen characterized the U.S. economy as “significantly stronger” than it was when the recession began six years ago and said the recovery “continues to improve.” She pointed to the turnaround in housing and strong auto sales as bright spots but added that the nation’s stubbornly high unemployment rate indicates “a labor market and economy performing far short of their potential.”

Janet Yellen to appear in documentary 'Money For Nothing'

Yellen appears in the movie 'Money for Nothing', along with a stellar group of current and former Fed officials including Charles Plosser, Jeffrey Lacker, Alan Blinder, Peter Fisher, Alice Rivlin, and the great Paul Volcker. (Prescient contrarians Jeremy Grantham, John Mauldin, Barry Ritholtz and Gary Shilling also have their say.)

Yellen says

“I pledge to do my upmost… to promote maximum employment, stable prices, and a strong and stable financial system. The Federal Reserve can help ensure that everyone has the opportunity to work hard and build a better life” 

Yellen’s comments were particularly notable. In the movie, she made a bold statement:

“It’s our job to guarantee that whatever happens to the federal deficit and debt…does not translate into inflation.” 

Obama nominates Janet Yellen for Fed chairwoman

President Obama nominated Janet Yellen to be Federal Reserve chairwoman. When she is, she will take office at a critical time. For the past quarter-century the Fed has accumulated more and more power. It has lowered interest rates to rescue plunging stock markets, and is now engaged in a vast experiment that’s adding $1 trillion to its balance sheet every year — with little to show for it.

Meanwhile, stock indexes keep hitting new highs on traders’ expectations that the Fed will keep doling out $85 billion a month in “quantitative easing,” which the Federal Open Market Committee voted to continue Wednesday.