Premier’s Jennings sees Yellen’s nomination as ‘safe’ choice

Mike Jennings, Chief Investment Officer, at Premier Asset Management comments on Janet Yellen’s nomination for Fed chief.

The nomination of Janet Yellen to replace Ben Bernanke as Chairman of the Federal Open Markets Committee was widely anticipated, since Larry Summers withdrew himself from the running a month ago. Yellen is the “safe” choice in this regard, having been vice-chair of the Fed for three years, and also having served as an economic advisor to Bill Clinton’s administration in the late 1990’s. As such, she will be seen as being a more experienced Chairman then many of her predecessors.

Yellen is seen as being in the “dove” camp, and therefore is likely to be less keen to be early on raising interest rates and more concerned with encouraging employment. Indeed in this regard, it is highly possible that she will allow the inflation rate to exceed the 2% target before she raises the Fed funds rate.

In the short term, whilst the markets are worried about US Government shutdown and the looming debt ceiling, the next issue on the minds of US market watchers is tapering of Quantitative Easing. Current Fed Chairman, Ben Bernanke will remain in place for many months to come, so the question is whether he will act on tapering at the end of his tenure or leave it to Ms Yellen. The good news for the markets is that this may well now be pushed out until 2014.

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