President Obama Wednesday nominated Janet Yellen to chair the U.S. Federal Reserve Board. If confirmed, Yellen would be the first female Fed chair and the first appointed Democrat in 34 years.
Yellen’s speeches and policymaking record reveal a central banker who supports aggressive monetary tactics to fulfill the Fed’s dual mandate of reducing unemployment and controlling inflation. As such, a Yellen-led Fed could pursue policies to stimulate the money supply in order to spur corporate investment and expansion. Yellen likely would utilize the Federal Open Market Committee (FOMC), which purchases Treasury securities, as well as other asset-backed securities in a more unconventional effort to target specific interest rates, commonly referred to as quantitative easing.
“If confirmed,” Yellen said Wednesday, “I pledge to do my utmost to keep that trust and meet the great responsibilities that Congress has entrusted to the Federal Reserve–to promote maximum employment, stable prices, and a strong and stable financial system.”
In a press conference flanked by current Fed Chairman Ben Bernanke and Yellen, President Obama praised Yellen’s reputation as a consensus builder and prescient observer of financial markets. “Janet is renowned for her good judgment. She sounded the alarm early about the housing bubble, about excesses in the financial sector, and about the risks of a major recession. She doesn’t have a crystal ball, but what she does have is a keen understanding about how markets and the economy work—not just in theory but also in the real world,” Obama said.
Upon her expected confirmation, Yellen will oversee $85 billion in purchases of Treasury and mortgage bonds every month, as well as ultra-low interest rates sought to ease bank lending and facilitate capital liquidity. Further, as stipulated by the Dodd-Frank Act, Yellen’s Fed must monitor systemic risk in the banking sector and ensure necessary capital requirements are in place. As head of the central bank, she will be tasked with setting the policy direction of those operations, amid calls to scale back Fed monetary support.
Yellen’s decisions regarding capital requirements and lending rates for banks, in addition to the Fed’s own wholesale bond purchases, will have a corresponding impact on market liquidity, cash flow management and the capital structure decisions that drive corporate finance.