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| The Yellen Fed? Precise and predict |
| The Yellen Fed? Precise and predictable
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| UNITED STATES OF AMERICA
, 10-October-2013
4:54:13 AM |
| There are no fast rules for running the Federal Reserve, but Janet L. Yellen has a few.
Rule No. 1: Be methodical and transparent.
Rule No. 2: See rule No. 1.
Even before President Barack Obama nominated her Wednesday to lead the Fed, Yellen advocated a rigorous, predictable approach to steering the nation's economy. In speeches in 2012, for instance, she talked about the virtues of using a mathematical formula to help determine when the central bank should raise or lower interest rates. Plug in economic growth, inflation and the like - and you have a decent guidepost for what policy should look like.
At least in theory. In practice, setting monetary policy rarely comes down to one equation. And not even Yellen is advocating a policy-by-the-numbers approach just now, given the fragile state of the economy.
But in public speeches and academic work, she has suggested that the Fed should be more systematic, predictable and transparent - in short, that it should lay down some rules and stick to them. It is a template that Wall Street likes, and one that underscores the Fed's departure from the days of Alan Greenspan, its chairman from 1987 to 2006, whose Delphic pronouncements were endlessly parsed by economists and investors.
Investors hope that a Yellen Fed will clearly telegraph its intentions to the financial markets, particularly as the central bank begins to taper its efforts to kindle growth. On Wednesday, that view was reflected in the stock market, which rebounded after two straight days of losses, in part on hopes that Yellen, if confirmed, would not rush to withdraw stimulus. The dollar also strengthened.
On Wall Street and in Washington, the view is that Yellen will generally maintain the policies of the current chairman, Ben S. Bernanke, while pressing for even greater transparency. In interviews, people who have known Yellen and her work frequently use the same word to describe her: "methodical."
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