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The Most Powerful Central Banker in the World

Yellen, 67, presently the vice-chairwoman of the Board of Governors of the Federal Reserve System will be the first woman to head the central bank in its 100 year old history. 10th October 2013 At a time where women are taking over coveted positions in corporates and other sectors, the banking sector is no exception. Marisa Drew, Credit Suisse Group AG (CSGN)’s most senior female...

Yellen, 67, presently the vice-chairwoman of the Board of Governors of the Federal Reserve System will be the first woman to head the central bank in its 100 year old history.

10th October 2013

At a time where women are taking over coveted positions in corporates and other sectors, the banking sector is no exception. Marisa Drew, Credit Suisse Group AG (CSGN)’s most senior female investment banker in Europe, expects it will take at least five years before women start to gain a greater share of senior positions in the industry. As per a report from Bloomberg and data inputs from Egon Zehnder International – women make up 19 percent of European bank boards, compared with 33 percent in the household’s products industry, which has the highest level of female representation. The world now has many influential leaders such as Angela Merkel- the German Chancellor known for her deft handling of the Euro crisis, Christine Lagarde – Managing Director of the IMF since 2011, U.S. Secretary of State –Hillary Clinton and Brazilian President- Dilma Rouseff who has been ranked as the third most powerful woman in the world by Forbes magazine. Adding to the list was Fiona Wolf, a partner of the law firm CMS Cameron McKenna LLP, who was named as the 686th Lord Mayor of London, only the second woman chosen to head the financial district’s municipal government in 800 years.

Now, adding to the list is the deeply experienced, imaginative and technically adept economist – Janet Yellen who will be the named next chair of Fed, succeeding Ben Bernanke whose term ends in January 2014. Yellen, 67, presently the vice-chairwoman of the Board of Governors of the Federal Reserve System will be the first woman to head the central bank in its 100 year old history. The Fed is the most powerful bank in the world and any action or changes in its policy is known to impact financial markets and emerging economies immensely. Janet Yellen won the race after Obama’s trusted lieutenant Larry Summers withdrew from the candidature after being opposed in the Senate for his close affiliations in the Wall Street. Yellen was appointed as vice chair in October 2010, she was President and CEO of the Federal Reserve Bank of San Francisco from 2004 and 2010 and also served as chair of the Council of Economic Advisors from 1997 to 1999. Prior to joining the Fed, Yellen spent much of her time as a professor at the University of California at Berkeley, where she had been teaching since 1980.

Path Ahead

A close proponent of the Q.E, she has been a key architect of the Fed’s efforts under Bernanke to keep interest rates near record lows to support the economy. These include the Fed’s monthly bond purchases and its guidance to investors about the likely direction of rates. “I commend President Obama on his selection of Dr. Yellen to be the first woman to serve as Federal Reserve Chairman,” said Senate Banking Committee Chairman Tim Johnson, in a statement late Tuesday. “She has a depth of experience a second to none and I have no doubt she will be an excellent Federal Reserve Chairman” he said. The current vice-chairwoman of the Board of Governors of the Federal Reserve System is married to Nobel Prize winning economist George Akerlof, whom she met in 1977, when they were economists at the Fed board- they married the following June and left the Fed to teach at the London School of Economics, their only son is also an economics professor in a renowned university.

Bernanke’s term ends in January 2014, completing an eight year tenure in which he helped pull the U.S. economy from its worst financial crisis since the 1930’s. Bernanke has led the Fed with some unconventional policies which have seen the economy recover, businesses prosper, lowering unemployment figures and credited for saving the U.S. banking system.

Unemployment Vs Inflation

Yellen, a distinguished economist subscribes to the Philipps-Curve-Model that trades off unemployment and inflation. In other words, rather than excess money creation as the cause of raising prices (which imbalances the economy), she focuses on the unemployment rate, the volume of new jobs being created and the growth of the overall economy. Lawrence Kudlow, an American economist who writes for various U.S. newspapers wrote on his blog that “If the Fed supplies more cash than the markets want, the inflation rate can go up whether unemployment is high or low. America has experienced this in the 1970’s when high inflation was accompanied by high unemployment” Kudlow, who is a proponent of supply side economics further elaborated “ The Fed is going to encounter excruciatingly difficult problems as it deals with withdrawing its Q.E-3, markets should be the guideposts for these decisions, not the unemployment rates” he says. “She is a very able economist; he concedes but warns “if you work from the wrong money model, you are likely to get the wrong money results”. However, Nathan Sheets, former head of the Fed’s division of International Finance said “Janet Yellen would be a vigorous proponent of the dual mandate. “The quest to appropriately balance the legs of the dual mandate, in the face of a disappointing recovery, is the primary challenge that Yellen would face” as Fed chairman.

But, Yellen strongly backs her theory of to stabilize output and boost employment when capitalism fails, a views she strongly favours and shaped by late Nobel laureate James Tobin at Yale University in New Haven, Connecticut, where she obtained her P.hd Degree in Economics. Yellen, who began her career as a “staff economist” in 1977 in the Fed’s division of International Affairs has profound knowledge in labour economics- she along with her husband George Akerlof  have co-authored more than a dozen papers that delved into the mechanics of how people switch jobs and what it means when workers perceive their wages as unfair.

Our View

Known as a “dovish” policy maker in the Wall Street, a person who is more permissive on inflation and tilted towards boosting employment, she is the most deserving candidate to the Fed’s chair. Apart from her academic experience, she has more than a dozen years in the Fed as a policy maker, in her speeches she frequently refers to model and simulations showing her expertise to deal rationally in difficult scenarios. The appointment of Yellen who will continue Q.E- is also a welcome move to emerging nations particularly – Brazil, Indonesia and India whose national currencies have plummeted due to Fed decision to taper its bond purchases.

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