The Fed’s plan

Host Mary Walden asks about the new Fed Chairperson Janet Yellen, who recently gave her first congressional testimony as head of the nation’s central bank.  Mary asks her husband, N.C. State University economist Mike Walden, “Did Janet Yellen indicate what the Fed’s plan for monetary policy will be?”

Mike Walden: “And this was a big deal Mary, because this was the first time, as you indicated, that new Chair Janet Yellen testified as head of the Federal Reserve. She took over a couple of weeks ago. And there have been a lot of questions about whether she would continue the policies of Ben Bernanke or have new policies, etc. And essentially, to summarize what she said, it’s going to continue as we have been going.

“She did say that at some point the Federal Reserve probably would increase short term interest rates, but she suggests that would not be anytime soon because she said that there are problems in the economy still, and the Fed needs to keep interest rates low to try to encourage borrowing. The question came up about the marker that former Fed Chairman Bernanke set down.  He said that when the unemployment rate gets down to 6.5 percent, the Fed may start to increase interest rates.

“Yellen said that was just a discussion point, nothing hard and fast about that. So, the markets interpreted that to mean, ‘no we’re not going to use that as a marker.’ She did say that the Fed would continue what’s called a ‘Tapering Program,’ meaning that their purchases of financial instruments — particularly mortgages — will continue, but will slow down. The Fed will not be purchasing as much.

“So, it looks like steady as you go — more of the same. And this was pretty much what we expected from Janet Yellen. She’s been there as Mr. Bernanke’s number two for several years. It looks like the policies that Mr. Bernanke put into place will continue under new Fed Chair Janet Yellen.”