Markets yesterday welcomed the near-certainty that the US Federal Reserve looks set to be led by a woman for the first time after President Barack Obama nominated Janet Yellen as the next head of the central bank.
She is seen as one of the most dovish candidates for the post, with investors taking the view that it meant continuing low US interest rates stateside were now more likely, and therefore good for equities.
However, Yellen, who once taught at the London School of Economics (LSE), faces the task of prising markets away from their reliance on regular multi billion dollar doses of quantitative easing that have nursed America to recovery.
More immediately, the US is edging closer to a possible debt default as the prospect of the White House and Congress agreeing a deal to extend the administration’s borrowing limit by 17 October looks more doubtful.
Investors expect Yellen to be cautious in winding down economic stimulus, and to provide continuity with the policies of current Fed chairman Ben Bernanke, whose second term is due to expire on 31 January, 2014.
“The markets are finding consolation in Yellen’s expected nomination because that at least puts the monetary policy on a more certain, or at least, a more familiar path,” said Anastasia Amoroso, Global Market Strategist at JP Morgan Funds.
Yellen becomes the second woman to head a G8 central bank, after Elvira Nabiullina became governor of the Bank of Russia in June. Yellen, 67, taught at the LSE, from 1978 to 1980, and at Harvard. She served as a policy adviser in Bill Clinton’s White House in the 1990s.
She is married to Nobel-prize winning economist George Akerlof, while her son Robert Akerlof is an academic at the University of Warwick in Britain.
Mark Zandi, chief economist at Moody’s Analytics, said the clarity about the new Fed chairman would help provide some stability amid a difficult political and financial US landscape.