The Federal Reserve chairmanship is changing over at a crucial time in monetary policy. Recently, the Federal Reserve has been following an aggressive quantitative easing (QE) strategy, buying $85 billion in bonds each month, in an attempt to stimulate markets. As a result, the Fed’s balance sheet has grown to historic proportions.
Federal Reserve Chairman Ben Bernanke had suggested that the Fed may begin slowing or “tapering” QE (phasing down) as soon as September. This suggestion alone sent the US market into a tailspin, resulting in a total market loss of 4 percent value in 48 hours. Mortgage rates went up a full percentage point to above 4.5 percent for a 30-year loan.
What the Federal Reserve should do next is contentious, even among the various Fed governors. President Obama's nomination of Janet Yellen to assume the responsibilities of Federal Reserve chairwoman comes at a precarious time. AEI scholars are keeping a close eye on this developing story.
John H. Makin, Stephen D. Oliner, and Desmond Lachman are among the AEI scholars who have been following the Fed’s actions closely. Here is a collection of their work and other selected pieces on the Federal Reserve chairmanship race.
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The good news for Janet Yellen is that she will take the reins at the Federal Reserve on Saturday with inflationary pressures subdued and the United States economy finally in an upswing (occasional stock market gyrations notwithstanding).
As the U.S. economy continues to sputter, American Enterprise Institute economists identify five areas that could heavily affect an American recovery in 2014: trade, the Federal Reserve, housing, taxes and the Internet.
In addition to her impending, and no doubt ultimately successful, quest for Senate confirmation, Janet Yellen will have a lot on her plate in the coming months. Now that House Republicans and Senate Democrats have come to yet another temporary agreement on the budget and debt ceiling, there still exists another threat to the economy.
Discretionary fiat-currency central banking is subject to high uncertainty. Therefore the attempts of central banks to “manage” financial and economic stability are inevitably subject to mistakes, and recurring big mistakes.
In the years leading up to the financial crisis, market participants assumed that policy makers would intervene to avoid the potential negative economic impact from the failure of a systemically important bank.
Even as the American economy continues to struggle in the Great Recession’s aftermath, Americans continue to blame President George W. Bush and the Republicans for causing the worst economic catastrophe since the Great Depression. It’s an understandable conclusion.
Someday the U.S. government’s currency monopoly might end. But probably not in my lifetime. I am willing to concede, though, that before our yellow sun goes red giant — the Republic will endure, my friends! — America might find itself awash in a competitive, Hayekian market of private currencies, perhaps the digital descendants of Bitcoin. It could happen.
The monetary cliff, or US potential to slip into a period of negative inflation (deflation), is more threatening than the fiscal cliff the United States faced earlier this year. Fed Chairman Ben Bernanke and soon-to-be chairman Janet Yellen should make deflation avoidance a more clearly stated Fed objective.