Essay on Fed Chair Yellen Begins Fight

1818 Words Apr 4th, 2016 null Page
Fed Chair Yellen Begins Fight to Save Her Legacy
During 2016, I have emphasised how difficult it would be for the Fed to wean the US economy off near zero percent interest rates. This is partly due to the globalisation of financial markets and that overseas economies are in no shape whatsoever to withstand higher interest rates. Meanwhile, in recent weeks, it has become increasingly evident that Fed Chair Yellen is keen to avoid her legacy being judged as a disappointment via her inability to raise the federal funds rate. She has duly taken note of the failures of other central banks to raise their policy rates away from zero. As recently as last December, Fed Chair Yellen was confident the federal funds rate could be raised without causing too much economic and financial market dislocation. The subsequent behaviour of markets in the wake of the first policy rate increase since 2006 came, therefore, as a major shock. These events have consequently shaken her conviction about the ability of the Fed to raise the policy rate significantly above zero over the next two years. There has been a tremendous battle for influence amongst Federal Open Market Committee (FOMC) members during 2016 and it appears the doves have the upper hand. Notably, Fed Chair Yellen appears to have heeded the advice of Fed Governor Lael Brainard, who has persistently worried that the downside risks to the economy are much greater than commonly believed. This change of heart by Fed Chair Yellen is…

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