Janet Yellen becomes Fed chair

On Jan. 6, the U.S. Senate confirmed Janet Yellen to succeed Ben Bernanke as chairman of the country’s central bank, the Federal Reserve. She is the first woman to be chair of the Fed and will assumes office Feb. 1 during one of the most active times of monetary policy in the Fed’s history. Ms. Yellen, previously vice-chair of the Fed and president of the Federal Reserve Bank of San Francisco, is no stranger to the dynamics of the FOMC, the Fed’s policy-making body.

“While the appointment of Janet Yellen as the first female Federal Reserve Chairman is appropriately in the spotlight, perhaps more important is her extensive background at the Fed,” said Jon Hooks, a professor of economics and management. “Her long history of work in economics and Federal Reserve policy will help smooth the transition of power during a critical time in monetary policy history.”

As she assumes the chairmanship, the Fed is looking to begin exiting from its unconventional and unprecedented intervention in the economy. Since 2008, the central bank has bought over four trillion dollars worth of assets such as treasury bonds and mortgage-backed securities through its various rounds of quantitative easing. The Fed now faces the challenge of timing the taper of its asset purchases and eventual sale of its assets as to not reverse an economic recovery that only recently gained momentum.

Fortunately for Ms. Yellen, inflation, a major concern for the Fed, remains subdued below its two percent long-run target. Additionally, the official unemployment rate (U-3) steadily fell to six point seven percent over the last quarter of 2013. These positive trends will make Ms. Yellen’s job easier in the future as she leads the Fed’s discussions about its exit strategy.

Despite these trends, Janet Yellen and the economy are not out of the woods yet. While the official unemployment rate is falling, broader measures of unemployment such as the U-6 unemployment rate, which includes those that are underemployed, not able to find full-time work, or those who have given up looking altogether, shows a labor market that remains weak.

Photo by John Rogers