work ahead
Fed will continue its bond-buying stimulus program for at least a little longer, Yellen says.
OT TAWA • She won’t start her new job for another couple of months, but Janet Yellen already has her work cut out for her.
Winning the support of President Barack Obama, who nominated her, might have been the easiest part. Facing the scrutiny of U.S. lawmakers on Thursday was more like a baptism-under-fire moment.
Ms. Yellen’s confirmation as Ben Bernanke’s successor is not in question. She’s one of the most qualified candidates — and the first woman — selected as chairman of the world’s most powerful central bank.
But when she does take over at the U.S. Federal Reserve, Ms. Yellen, 67, acknowledges there is still a lot “more work to do.” That will be hard part. For now, Ms. Yellen, currently the Fed’s vice-chair, told the Senate banking committee in Washington to expect more of the same stimulus policies as her predecessor — for at least a while longer.
How she sees progress in the U.S. recovery over that time will determine when and how the Fed begins to unwind its extraordinary quantitative easing (QE) measures — now at a monthly bond-purchasing level of US$85-billion — and starts to move away from its current near-zero interest-rate base.
Any strengthening of demand in the U.S., which is still Canada’s biggest trading partner, will support growth in this country. Those signs have already become visible in the resurgent U.S. housing market and auto industry.
“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Ms. Yellen said in her testimony before lawmakers.
“I consider it imperative that we do what we can to promote a very strong recovery,” she said. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
Ms. Yellen did not put a timeline on Fed tapering of QE, but told the committee that she did not see it “continuing indefinitely.”
“Our country has come a long way since the dark days of the financial crisis, but we have further to go. I believe the Federal Reserve has made significant progress towards its
Our country has come a long way since the dark days of the financial crisis
goals, but has more work to do.”
Crucial to any Fed tapering will be how many jobs the economy can create, while also getting the annual inflation rate — currently at 1.2% — back up to the 2% target and keeping it near there. Policymakers have also set a threshold of 6.5% for the U.S. jobless rate before any policy easing will begin. The rate is now at 7.3%.
Philip Shaw, chief economist at Investec in London, said Ms. Yellin “seems that policy remains driven by data for the time being.”
In this coun- try, where the Bank of Canada also has an inflation target of 2%, consumer price gains have been hovering well below, or slightly above 1% for 1½ years and the economy is still saddled with steady but moderate growth.
Ms. Yellen “has showed that she is an adamant advocate of the policies the Fed has implemented,” said Martin Schwerdtfeger, senior economist at TD Bank Group.
“If it will be good for the U.S. economy, it will be good for the Canadian economy, and that is positive,” he said.
Economic issues aside, new leadership at the Fed — and the directions she takes — “won’t change Canadian monetary policy,” Mr. Schwerdtfeger added.
The Bank of Canada “pursues an independent monetary policy that is tailored to the conditions prevailing in the Canadian economy,” deputy bank governor John Murray said in article published Thursday.
“There have been notable differences in Canadian and U.S. interest rates over time, reflecting the varying economic circumstances in each country and differences in the appropriate monetary policy settings.”
The Bank of Canada has avoided the drastic monetary measures — such as QE asset purchases — used in the U.S., thanks greatly to this country’s strong initial bounce-back from the 2008-09 recession.
However, policymakers here initially slashed borrowing costs to a record-low 50 basis points, eventually raising the key rate to 1% in September 2010, where it remains today.
Ms. Yellen had a front-row seat to view the impact of the recession, and earlier economic crises.
Ms. Yellen has been vice-chair of the Fed since 2010. Prior to that, she was president of the San Francisco Federal Reserve, one of 12 regional arms of the Fed.
Earlier, she was also an economic presidential advisor to Bill Clinton.
The U.S. Senate committee will pass along its judgment of Ms. Yellen to the full Senate, where Mr. Obama’s Democrats occupy 55 of the 100 seats. She will need to win over at least five Republicans to get the necessary 60-seat vote for confirmation.
The timing of that process is still a political work in progress, although there is much negotiating time left before Mr. Bernanke, 59, steps down after two consecutive four-year terms on
Jan. 31.