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MarketsYellen to take on the toughest job in central banking

President Barack Obama may have got George Osborne’s name wrong at a G8 meeting in June, but the US president could learn plenty from the
UK chancellor on how to appoint a central bank chief.

When Mr Osborne announced the surprise appointment of Mark Carney as the Bank of England governor in parliament last November, his pick
quickly won broad political support.

Janet Yellen, who the White House says it will formally nominate as
the next chair of the Federal Reserve on Wednesday afternoon, has not enjoyed such a comfortable journey as Mr Carney did.

It has been widely reported that Larry Summers, a former economic
adviser to the White House and Treasury Secretary to Bill Clinton, was
Mr Obama’s first choice until opposition from Democratic Senators
forced his withdrawal in September.

The current vice Fed chair has also spent the summer being branded as
excessively dovish – or too inclined to fight unemployment while
neglecting the possible threat of inflation. The Senate nomination
process, which Ms Yellen is expected to pass, will give the 67-year
old an opportunity to dispel that perception.

However, Ms Yellen’s sometimes tricky path to the summit of the Fed is
dwarfed by the challenges she will face should the Senate approve her
nomination.

Firstly, a US recovery that has consistently disappointed – at least
as far as GDP goes – the Fed’s own forecasts. Secondly, a Congress and
White House that develops fiscal policy by lurching from one crisis to
the next. And, thirdly, a number of colleagues on the Fed’s Open
Market Committee (FOMC) who are becoming sceptical about the continued efficacy of the central bank’s stimulus programme.

Then throw in the fact that Ms Yellen is not the only change impending
on the FOMC. Having been promoted, she will need a new vice chair, and
a number of her colleagues on the committee have either left or are
about to.

The challenges are not, unfortunately, ones that Ms Yellen will be
able to disentangle and take on one by one. Instead, she needs to
steer the FOMC towards a consensus on how the central bank can best
sustain a policy response for a US recovery that remains far from
where many would like it to be.

At his appointment, Mr Carney was naively acclaimed as a central
banker with almost magical powers to improve the UK recovery. Ms
Yellen will need superhuman abilities just to stay on top of the
hardest job in central banking.

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