Risk Management, Trading & Portfolio Strategies

Janet Yellen’s star rises

Janet Yellen is expected to becoem the next Fed chair, but what type of leadership will she bring to the table?

Janet Yellen is expected to becoem the next Fed chair, but what type of leadership will she bring to the table?

The rise and fall of Larry Summers' candidacy for Federal Reserve chair was predicted by many, but some thought that, perhaps, the former Treasury Secretary would give Janet Yellen, his primary opponent and current number-two to Ben Bernanke, a bigger run for her money. Yet once his withdrawal from the race was confirmed and analyzed by the financial media, Yellen is firmly back in the limelight and looks clear for a nomination later this year.

Yellen has long been considered the "safe" choice, considering her relationship with Bernanke and her decades at the Fed. Not only does she have an intimate knowledge of the inner workings of the Marriner Eccles Bulding, but she has forged long-time connections within the institution and even met her husband there. She enjoys the support of the Democratic Party, who has pushed for her candidacy in opposition of Summers', and many view his stepping-back as a sign of that movement's clout, despite President Barack Obama's personal support.

Yet these facts mean next to nothing compared to Yellen's impact on the global economy, in which the Fed has enormous sway. It's tough to say how closely aligned Yellen's approach to running the Fed will be to Bernanke's style. However, it is public knowledge that Yellen was deeply involved in crafting the monetary stimulus program known as quantitative easing (QE) and has been a staunch supporter of each of the plan's iterations since the start of the Great Recession.

Investors should keep a close eye on markets as the year continues and Bernanke's retirement approaches. Any indication that QE could be slowed or withdrawn may send markets into a tailspin. This risk was confirmed by this month's FOMC meeting that ensured the continuation of the $85 billion-per-month monetary stimulus, setting the stage for a potentially large correction. Use SmartStops, our innovative suite of portfolio management tools, to watch for Risk Signals and other indications that accommodative actions need to be taken. 

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