Janet Yellen, chairwoman of the Federal Reserve, will be vacating off in early 2018. While her re-election is not confirmed yet, she is leaving a legacy of reforms behind. In a recent address, she commented that the Feds have shifted their policy focus. Now, the US central bank aims for sustainable growth instead of stimulating the economy. Recently, the Feds decided to raise interest rates. Later, they followed up by deciding to clear their balance sheet. As trillions of dollars of bonds and other securities will be cleared off, a rate hike makes more sense for the economy.
Yellen’s Plans
The Fed chairwoman told the media that the economy is in a “pretty healthy” state due to the efforts of the Fed. She said “Looking forward, I think the economy is going to continue to grow at a moderate pace. Our job is going to be to try to set monetary policy to sustain what we have achieved.” She stated that the central bank is now moving from a pro-crisis policy to a sustainable growth policy. This year, the US economy will see lessening support from the central bank. This will help the economy continue to grow at a moderate but sustainable growth rate.
Fed Policies Shifting
Feds will be increasing benchmark rates multiple times during the year to accommodate their policy shift. The rapid cleansing of the Fed balance sheet will help create a more balanced economy. Yellen supported the financial regulations laid by the Dodd-Frank Act. Note that Trump administration has been calling out this regulation for long and believes it is ineffective.
Yellen is backing the decision of asking the banks to raise more funds from the investors. Another decision by the Feds will enrol big banks for a yearly stress test. She looked positive on the economic situation. Consequently, she refused to acknowledge that the economy is stiffening because of government plans.
Yellen stated “We have accomplished a lot, and we have a much safer system. I don’t think if you look at objective data on lending, that it’s possible to make the case that regulation has simply stifled lending, I don’t think if you look at objective data on lending, that it’s possible to make the case that regulation has simply stifled lending.
The Fed chairwoman was also vocal on reducing the burden on smaller banks. Her actions have been taken positively by the media and the critics. It would be interesting to know the response of the economy on these decisions. More interestingly, we will have to see how her successors at the Federal Reserve view this policy shift.
Anthony Young
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