A dove at the Fed

Fri, Oct 11, 2013, 09:07

In nominating Janet Yellen to succeed Ben Bernanke as chairwoman of the Federal Reserve - America’s central bank – President Barack Obama has opted for continuity rather than change. Dr Yellen will face a formidable challenge in accepting what is seen as the most important position in the world economy. What the Federal Reserve decides in monetary policy matters – in setting interest rates, checking inflation, or providing an economic stimulus -– also affects the global economy.

Under Ben Bernanke, the Federal Reserve has used unorthodox methods to contain the financial crisis. As chairman, he has cut interest rates to a record low and – via quantitative easing – the Federal Reserve has purchased financial assets as an economic stimulus. This monetary strategy has ensured that a recession did not become depression. But now a key part of Dr Yellen’s job will be, slowly, to reverse that process. Over time that will involve tightening monetary policy, by tapering, or reducing the size of the monthly money printing exercise, while also slowly raising interest rates. To do that, and to retain the trust and confidence of financial markets will involve judgment and clear communication skills.

Dr Yellen, an experienced central banker, is uniquely well qualified for the post, and she will become the first woman to head the Federal Reserve in its 100-year history, where currently six of its 11 board members are women. By contrast, the European Central Bank has no woman on its governing council, and Ireland’s Central Bank has just one. Central bankers are often categorised as either “doves” or “hawks” – based on their attitude to fighting inflation.

The Federal Reserve has a dual mandate, to concern itself with both inflation and employment. Dr Yellen, like Mr Bernanke, is seen as a “dove” – one ready to accept slightly higher inflation to secure a lower unemployment rate.

The ECB has no such policy flexibility. Regrettably, and to the euro zone’s cost, it has a stricter mandate, a singular concern with price stability.

Sign In

Forgot Password?

Sign Up

The name that will appear beside your comments.

Have an account? Sign In

Forgot Password?

Please enter your email address so we can send you a link to reset your password.

Sign In or Sign Up

Thank you

You should receive instructions for resetting your password. When you have reset your password, you can Sign In.

Hello, .

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

Thank you for registering. Please check your email to verify your account.

We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.