Investors will be paying rapt attention to Janet Yellen’s verbal evidence in her confirmation hearing at the Senate Banking Committee on Thursday. With December tapering of asset purchases possibly back on the agenda after the stronger US jobs data in October, her take on the strength of the economy will be critical, especially since she has not opined on this or any other contentious matter since the spring.
But tapering is going to happen fairly soon in any event, and in the longer term investors should pay more attention to what she says about the framework which she will be using to determine policy during her five year term. In particular, will she be using an “optimal control” framework, which she adopted last year and which was at the centre of two Fed research papers published last week? Read more