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Wall Street expects Yellen to continue Fed's easy-money policies

October 09, 2013|By Andrew Tangel
  • A New York Stock Exchange specialist watches a TV report on the Federal Reserve's decision to lower the short-term lending rate to near zero In December 2008.
A New York Stock Exchange specialist watches a TV report on the Federal Reserve's… (Richard Drew / AP )

NEW YORK -- President Obama's nomination of Janet Yellen to lead the Federal Reserve was not a surprise to Wall Street.

Yellen, currently the Fed's vice chair, is widely expected -- for better or for worse -- to continue the policies of Ben S. Bernanke, the central bank's soon-to-depart chairman.

The Fed has been trying to prop up the U.S. economy with an unprecedented stimulus program known as quantitative easing.

By buying bonds to keep a lid on interest rates and borrowing costs low, the Fed has tried to stimulate growth. Critics of the policies have worried about the potential for runaway inflation and asset bubbles.

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Here are a few voices from the financial industry, from interviews and prepared statements:

Jeffrey Cleveland, senior economist with money manager Payden & Rygel in Los Angeles: "It’s the best candidate in terms of continuity.... Investors that I talk to seem to think that’s the best outcome, to have that consistency.

"The bond market may cheer that she’s going to take over, but it’s going to be more of the same in terms of policy, and I don’t think it’s going to be sufficient.... When you’ve had [the] Fed Funds [interest rate] at zero for five years, and you’re still waiting for a pickup in inflation and you’re still waiting for the employment situation to improve more, I think the reality is there’s not much more they can do.”

Steve Huber, bond portfolio manager at T. Rowe Price: “It doesn’t seem like she’ll be in a hurry to pull off stimulus. She’ll be very measured in her approach.... It’s going to be at least December before tapering is back on the table and could very well be into 2014 before anything happens. It’s hard to handicap at this point, because economic releases aren’t coming through [because of the federal government shutdown].... It’s going to be a continuation of what we’ve seen: the easy money will continue.”

Russ Koesterich, chief investment strategist at BlackRock Inc.: “As Federal Reserve chairman, we would expect Janet Yellen to approach the daunting task of winding down an era of ultra-loose monetary policies in a similar fashion as her predecessor — with caution. 

"With the president’s nomination of Yellen, we continue to believe that the Federal Reserve could begin tapering its $85 billion-a-month bond purchasing program as soon as December and that its pace will likely be slow and dependent on the strength of the U.S. economy.  Further, a Yellen-run Fed would likely place significant weight on the second part of the Fed’s dual mandate -- full employment -- even at the cost of a temporary rise in inflation.  We maintain our belief that rate hikes are unlikely to come before 2015.”

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Peter Schiff, chief executive and chief global strategist of the brokerage Euro Pacific Capital Inc.: "Financial forecasts should assume that not only is a taper off the table, but that the QE program is now more likely to be perpetuated and expanded.

"I believe that a Yellen-led Fed will return once again to a single mandate, but now it will focus only on employment. Based on her clear beliefs in the ability of dovish monetary policy to relieve human suffering, she will be inclined to dig in her heels into the ongoing QE program more than anyone else President Obama may have appointed. This is terrible news for the U.S. dollar and the U.S. economy."

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