By James Politi in Washington
In his final press conference before heading to Martha’s Vineyard, an island off the coast of Massachusetts, for summer holidays, president Barack Obama was asked about his looming pick to succeed Ben Bernanke as Federal Reserve chairman.
We’ll try to parse his words, like a Fed statement.
On timing – Mr Obama repeated that he would make the decision in the autumn, which technically begins September 22. But some speculate that a choice could come sooner. Mr Obama might take the time over the holiday to ruminate and, perhaps inspired by the Atlantic ocean breeze, even make up his mind one way or the other.
On names – Mr Obama confirmed that Janet Yellen, the vice-chair, and Larry Summers, the former Treasury secretary and a top White House economic adviser in 2009 and 2010, are the leading candidates, mentioning them by name and calling them “terrific people”. Interestingly, he left out Don Kohn, a former Fed vice-chair who he had mentioned as a possibility in meetings with congressional Democrats last week. But he did say there were a “couple of other candidates” too. Read more
Today’s speech by Janet Yellen is a mirror of Ben Bernanke last week when it comes to the costs and risks of continued asset purchases. “At this stage, I do not see any [risks] that would cause me to advocate a curtailment of our purchase program,” she says.
Where Ms Yellen, the Fed vice chair, breaks some new ground is on the definition of a “substantial improvement” in the labour market.
A reminder: the Fed says it will keep on buying assets, currently at a pace of $85bn a month, until it gets that substantial improvement. Ms Yellen sets out five measures which basically form a Fed dashboard for the labour market. Here they are: Read more
Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe Read more
Janet Yellen prefaces her speech today by saying that “it is not my intention to provide new information about the outlook for the US economy or monetary policy” but it is extremely tempting to read two scenarios that she sets out (as illustrations of the effects of Fed communications) as primary policy options for the next couple of years.
Scenario 1 – Delayed tightening
“If financial market participants appeared to be expecting policy firming to begin somewhat sooner than policymakers considered desirable or appropriate under such circumstances, the language of the forward guidance could be adjusted to shift expectations toward the somewhat longer horizon over which the Committee expected the federal funds rate to remain extraordinarily low.”
The good news today was that Janet Yellen and Sarah Bloom Raskin were both sworn in today by Ben Bernanke as Federal Reserve governors, meaning the top echelon of policymakers at the US central bank is nearly complete. Six seats on the seven-member board have now been filled, and Ms Yellen can now take up her position as vice-chair replacing the retiring Don Kohn.
Although Ms Raskin and Ms Yellen have enjoyed a relatively smooth ride through the confirmation process in the Senate, their colleague Peter Diamond of the Massachusetts Institute of Technology is having a much tougher time. Following grumblings about his suitability for the job from powerful Republican Richard Shelby, his nomination was scrapped and then resubmitted from the White House, and remains on hold in the upper chamber.
But Mr Diamond’s limbo is by no means the most troubling or most egregious. Jack Lew, the Obama administration’s pick for budget director, was cleared for the post in September by a Senate committee on a unanimous bipartisan vote. Read more
To say that Janet Yellen, Sarah Bloom Raskin and Peter Diamond got off lightly at their confirmation hearing before the Senate banking committee would be an understatement.
With most members distracted – or absent- by the imminent final vote in the Senate on financial regulatory reform, the event itself only lasted about 90 minutes. And if ever it was in doubt, it now seems abundantly clear that the three nominees will be comfortably, and swiftly, confirmed to the Federal Reserve board of governors.
Nevertheless, I was able to extract a few interesting nuggets from question-and-answer period. The most timely question came from Jeff Merkley of Oregon for Janet Yellen, who is slated to take over from Don Kohn as vice-chair. He asked where she stood on the dominant debate over US fiscal policy – should there be more stimulus or should authorities immediately start reining in the deficit ? Read more
Janet Yellen has just released her statement to the Senate banking committee, where she – along with Sarah Raskin and Peter Diamond, other nominees to the Federal Reserve board - faces a grilling from lawmakers today on her bid to become vice-chair of the Federal Reserve replacing Don Kohn.
Ms Yellen, president of the San Francisco Fed, is predictably cautious as she introduces herself to the panel: “I am wholeheartedly committed to pursuing the Fed’s congressionally mandated goals of maximum employment and price stability and to strengthening our programme of supervision and regulation, building on the lessons learned during the financial crisis.”
Her statement gets a little meatier later on, and, reading through the lines, there are two main messages. On monetary policy, Ms Yellen still believes plan A is an eventual tightening. And to Congress, Ms Yellen is very clear: independence is crucial to central banking, so hands off the Fed ! Read more
The long Independence Day weekend is going to be particularly busy for Janet Yellen, Peter Diamond, and Sarah Bloom Raskin, who will likely spend less time eating burgers by the swimming pool and more time preparing for a round of questioning from US Senators.
With the economic recovery looking ever so shaky, it will come as a relief that the Senate banking committee has finally scheduled a confirmation hearing for the three nominees, and July 15 is the magic date. Assuming everything goes smoothly, the three candidates to the Federal Reserve board of governors should be taking up their posts by August, in time, especially, for Ms Yellen to replace retiring Don Kohn as vice-chair. Mr Kohn is slated to leave the central bank on September 1. Read more
Don Kohn is set to end his tenure as vice-chairman of the Federal Reserve tomorrow, but, at the request of his boss Ben Bernanke, he will be staying on as governor until September 1 at the latest.
The hope within the central bank is that as early as next month the Senate will begin to move towards confirming Mr Kohn’s replacement, Janet Yellen, currently president of the Federal Reserve Bank of San Francisco.
Also on the Senate’s docket are the nominations of Peter Diamond, the Massachusetts Institute of Technology economist, and Sarah Bloom Raskin, the Maryland banking regulator, which would complete the seven-member board of governors.
Their nominations have stalled in Congress mainly for logistical reasons: Read more
Fans of Donald Kohn, second in command at the Federal Reserve, have a temporary reprieve today. Mr Kohn, who was slated to leave the Fed in a couple weeks, will now stay on perhaps until September.
Here’s the Fed’s statement:
Vice Chairman Donald L. Kohn announced on Friday that, at the request of Federal Reserve Chairman Ben S. Bernanke, he plans to remain on the Board until a new Governor is appointed but to leave no later than September 1. He had announced in March that he intended to resign at the expiration of his term as Vice Chairman on June 23, 2010. While he remains on the Board as a Governor, he will continue to participate in all Board and Federal Open Market Committee meetings.
Janet Yellen, now San Francisco Fed president, was nominated by President Barack Obama back in April to fill the soon-to-be vacant slot, but so far, there have been few visible moves to get the Senate confirmation process in motion – and Republicans have been actively obstructionist in confirming Obama picks to any government post. Read more
Peter Diamond, the Massachusetts Institute of Technology economist, is arguably the most interesting of the three nominations by President Barack Obama to the Federal Reserve Board of Governors.
Janet Yellen, president of the San Francisco Fed, is a consummate monetary economist close to Don Kohn in her views on interest rates, and has already been at the heart of many of the US central bank’s decisions during chairman Ben Bernanke’s tenure. Read more
President Barack Obama is reported to be looking at San Francisco Fed president Janet Yellen to fill Donald Kohn’s vice chairman seat when he leaves this summer. So what had Ms Yellen been looking at to boost the US economy?
Housing, she said in a speech today.
Ms Yellen, San Francisco Fed president, said last year she “became hopeful that the sector would provide a significant boost to the economy this year.”
But then, she said, the market seemed to have stalled. Indeed, home sales data released earlier today and the impending end of the home buyer tax credit bode poorly for a home price bottom.
Optimism on housing is nothing new for Ms Yellen (or, as we know, other FOMC members). Read more
Analyst reaction to reports Janet Yellen may be tapped to be Fed Vice Chairman:
Outside of Boston Fed’s Rosengren and Fed Chief Bernanke himself, Yellen is one of the most dovish members on the FOMC and this would certainly raise her status as a permanent voter. Yellen has done a past stint as a governor at the Fed and returned to the SF Fed after a period as a professor of economics at U.C. Berkeley, and is very well-versed on the inner workings of the Fed.
On Janet Yellen potentially becoming vice chairman of the Federal Reserve
For Friday fun
US President Barack Obama plans to nominate San Francisco Federal Reserve Bank President Janet Yellen to be vice chairman of the central bank, a source familiar with the process said on Thursday. Read more
That other real estate market came back into the spotlight today as Chris Dodd, chairman of the Senate Banking Committee sent letters to a number of regulators, including the Federal Reserve, asking them to report on their efforts to stabilise the commercial real estate market.
By any realistic estimate, CRE has yet to finish wreaking havoc on the economy. Nearly half of CRE loans are currently “underwater” and the largest loan losses haven’t yet occurred, according to the Congressional Oversight Panel. Read more
Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, today spoke of an ‘impressive’ turn-around in GDP and said that the tide of dismal economic news ‘appears to have turned.’ But there the upbeat message of the a leading dove ended.
The annual 5.7 per cent growth in fourth quarter GDP was unlikely to be sustained, she argued.
Unfortunately, I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the recovery.
The reason for her scepticism in the sustainability of last quarter’s growth was, of course, the same as everyone else’s: most of it was due to a slowdown Read more
Current US monetary policy is likely to prove excessively inflationary for China and Hong Kong, but both countries are ‘stuck’ with the effects of Fed policy as they have pegged their currencies to the dollar.
So says Janet Yellen, San Francisco Fed chief: Read more
San Francisco Fed chief says interest rates today would be “well below this zero bound” if such a thing were possible. Her comments show that she is a very, very long way away from voting to raise rates, writes Krishna Guha of the Financial Times Read more