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Yellen to enter spotlight as new leader of Fed

Published on NewsOK Modified: March 18, 2014 at 11:03 pm •  Published: March 18, 2014
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WASHINGTON (AP) — Investors will be watching closely Wednesday for any hints of how a Janet Yellen-led Federal Reserve might differ from the path set by her predecessor, Ben Bernanke.

The Yellen era will begin in earnest when the Fed ends two days of policy discussions. It will be her first meeting as Fed chair, a position she assumed Feb. 3, after Bernanke stepped down after eight high-profile years.

After the Fed issues a statement at the end of its policy meeting and updates its economic forecasts, Yellen will preside over a news conference. She is widely expected to embrace Bernanke's approach of keeping interest rates low while gradually paring the Fed's economic stimulus.

Most analysts expect the Fed to announce a third reduction in the monthly pace of its bond purchases from $65 billion to $55 billion. Those reductions are expected to continue this year until the bond purchases end altogether by December.

The Fed's bond purchases have been intended to keep long-term borrowing rates low to spur spending and growth. Its decision to continue paring them signals its belief that the economy is showing consistent improvement.

Many analysts think the Fed could make one change in its statement Wednesday. It may drop a reference to a specific unemployment rate that might cause it eventually to begin raising short-term rates.

The Fed's most recent policy statement said it planned to keep short-term rates at record lows "well past" the time the unemployment rate fell below 6.5 percent. The rate is now 6.7 percent. Several Fed officials have recently suggested scrapping the 6.5 percent threshold and instead describing more general changes in the job market and inflation that might trigger a rate increase.

One reason for dropping the threshold, as Yellen among others have noted, is that the unemployment rate can overstate the job market's health. In recent months, for example, the rate has fallen not so much because of robust hiring but because many people without a job have stopped looking for one. Once people stop looking for a job, they're no longer counted as unemployed, and the rate can fall as a result.

"There is a growing consensus to go with more nuance instead of a specific number," said Diane Swonk, chief economist at Mesirow Financial. "I think they are just too close to 6.5 percent on the unemployment rate."

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