Policy challenges looming for Yellen as likely next Fed chair
(REUTERS) - President Barack Obama will nominate Fed vice-chairman Janet Yellen on Wednesday to succeed Mr Ben Bernanke as leader of the United States (US) Federal Reserve, putting her atop the world's most influential central bank as it attempts to finally move on from an era of economic crisis.
If Ms Yellen is confirmed by the Senate, as expected, she will face a series of delicate policy challenges in the months and years ahead, starting with how quickly to wind down the Fed's aggressive bond-buying campaign. Here are the main policy challenges on the horizon:
BLOATED BALANCE SHEET. After three rounds of quantitative easing, or QE, the Fed's balance sheet has swelled to about US$3.7 trillion (S$4.6 trillion), a record level and far higher than the approximately US$1 trillion the Fed carries in more normal times. Some fear the haul of Treasuries, mortgage-backed securities and other bonds could stoke inflation in the years ahead, and potentially cause hard-to-detect market disruptions and asset bubbles.
While it continues to buy US$85 billion in bonds per month to encourage investment and growth, the Fed wants to begin reducing the programme. Mr Bernanke said in June the Fed expects to taper the purchases this year and halt them altogether by mid-2014, although he declined to confirm that timetable in September.