Yellen sworn in as Fed chair, succeeding Bernanke
WASHINGTON (AP) – Janet Yellen officially took over the leadership of
the Federal Reserve on Monday – and along with it a delicate task:
Unwinding the Fed's extraordinary economic stimulus without spooking
investors or slowing a still-subpar economy.
Yellen, the first woman to lead the Fed in its 100
years, was sworn in during a brief ceremony in the central bank's board
room. She succeeded Ben Bernanke, who stepped down last week after eight
Bernanke is joining the Brookings Institution, a
Washington think tank, where he will be a distinguished fellow in
residence, Brookings announced Monday.
The economy Yellen inherits is far stronger than
the one Bernanke faced in the fall of 2008, when the worst financial
crisis since the 1930s erupted. Bernanke spent the rest of his tenure
launching and managing an array of programs that are widely credited
with helping restore lending and strengthen the financial system and
economy after the Great Recession.
Yellen, 67, who served as vice chair under
Bernanke, is taking over just as the Fed has begun its first modest
moves to scale back its enormous support for the economy. At a meeting
last week, the last under Bernanke's leadership, the Fed approved a
second $10 billion reduction in its monthly bond purchases to $65
The first cut was announced at the Fed's December
meeting, when it said it would trim its purchases from $85 billion a
month, the level for more than a year. The Fed's bond buying has been
intended to keep long-term interest rates near record lows to stimulate
But as the economy has improved, Fed officials have
decided it could withstand less help. The Fed is expected to keep
reducing its bond purchases this year and end them altogether in
If the Fed moves too quickly to withdraw its
stimulus, it could spook financial markets and send rates higher.
Conversely, paring its bond buying too slowly could risk creating
bubbles – that might burst – in real estate, stocks or other assets.
Already, concern about reduced Fed bond buying and
the prospect of higher U.S. rates has shaken global markets. Central
banks in several emerging nations have raised rates to try to prop up
their falling currencies and control inflation. Stock prices have sunk.
Countries such as Turkey, India and Brazil had
benefited from the Fed's bond purchases. Investors poured money into
these countries in search of higher yields than they could get in the
United States and other developed nations. Now, with U.S. rates possibly
headed up, investor money is flowing back out of these countries.
Sung Won Sohn, an economics professor at California
State University Channel Islands, said he wouldn't be surprised if the
Fed slowed or even halted its bond reductions if the turbulence overseas
“If the global market turmoil continues, I think
the Fed will have to take notice,” Sohn said. “We are living in an
interconnected world, and I don't think the Fed can ignore what is
The Fed's next meeting, the first with Yellen in
charge, is March 18-19. She is scheduled to hold a news conference
afterward. Before then, Yellen will appear before Congress next week to
deliver the Fed's twice-a-year report on its handling of rates and its
House Financial Services Committee Chairman Jeb
Hensarling, R-Texas, has been vocal in his criticism of the Fed's
policymaking. Hensarling has argued that the Fed's use of trillions in
bond purchases and ultra-low rates have left the country vulnerable to
higher inflation and economic instability. He has announced hearings on
the Fed's bond buying and its “potential unintended consequences.”
Yellen has said that such fears are overblown and that the Fed has the means to monitor risks and address them.
A close ally of Bernanke, Yellen is expected to
follow his approach of maintaining low short-term rates while gradually
scaling back the bond purchases designed to keep long-term rates low.
Yellen made no comments during the ceremony Monday
in which the oath of office was administered by Fed Governor Daniel
Tarullo, the senior member of the Fed's seven-member board.
She was sworn in before a fireplace in the Fed's
stately board room. Her husband, George Akerlof, a Nobel-winning
economist, was present, as were Fed board members and staff.
Yellen's four-year term as Fed chair will end on Feb. 3, 2018. But Fed chairs generally serve more than one term.
In the meantime, a blog posting from Brookings said
Bernanke would work on a book about his years at the Fed. In the past,
Bernanke has said he looked forward to writing and giving speeches once
he stepped down.
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