Obama To Nominate Janet Yellen As New Fed Chief As QE Taper Debate Looms

Amid a political standoff in Washington, President Obama is set to nominate Janet Yellen to replace Ben Bernanke as head of the Federal Reserve, the White House said Tuesday night. Yellen, the current vice chairwoman of the central bank and the front-runner for the top spot after Larry Summers withdrew as a candidate amid intense political scrutiny, guarantees a continuation of current monetary policy, with the Fed engaged in an $85 billion-a-month asset purchase program that could be close to being wound down. An official announcement is expected to be made Wednesday.

If confirmed by the Senate, Yellen would take the helm of the Fed in a moment of transition, as the FOMC prepares to taper its quantitative easing program, a prospect which the markets see as the beginning of the end of easy money. Yellen has worked side by side with Chairman Bernanke as vice chairwoman since 2010, and has been a proponent of the Fed’s loose monetary stance. Even if the Fed reduces its pace of monthly asset purchases, it would still be adding to its balance sheet.
Since the Federal Funds rate hit the zero-bound in the wake of the 2008 financial crisis, Bernanke has engaged in several rounds of quantitative easing, buying Treasuries and mortgage-backed securities with the aim of increasing the money supply and encouraging bank lending. The Fed’s balance sheet has ballooned past $3 trillion, leaving his successor with the difficult task of managing the exit strategy.


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