Wednesday, October 9, 2013

Janet Yellen to be nominated as Ben Bernanke's successor at US Federal Reserve

With financial markets so concerned about the prospect a US debt default, President Obama has moved to temper the jitters by nominating a replacement for Ben Bernanke who's retiring as chairman of the US Federal Reserve.

Dr Bernanke's successor will be his deputy Janet Yellen who is set to become the first woman to lead the world's most powerful central bank.

Listen to my analysis from today's edition of The World Today.

It will be a hard act to follow.

Ben Bernanke is a veteran of sleepless nights after inheriting the Wall Street collapse in 2008 and is still managing the fallout of the global financial crisis which remains far from over.

Financial markets will see Janet Yellen as a safe bet and perhaps a short term antidote to the anxiety being caused by the partial US government shutdown and the fast approaching debt ceiling deadline.

Ms Yellen is not such a big departure from Ben Bernanke's dovish economic mantra.

She is seen as likely to keep official US rates close to zero for as long as necessary and will be cautious about when - or if - to wind back the Fed's economic stimulus program which is currently buying $85 billion in bonds every month.

The official announcement of Ms Yellen's nomination is scheduled for 3pm tomorrow in Washington (6am eastern time Australia) and already investors are welcoming a morsel of certainty in an increasingly volatile world.

A former member of the US Federal Reserve Randy Kroszner told Bloomberg Ms Yellen will be welcomed as someone who has been "battle tested" having made it through the worst of the financial crisis.

Ms Yellen is also expected to make it through the congressional confirmation process with little drama despite being President Obama's third choice.

Former Treasury Secretary Timothy Geithner couldn't be tempted to leave the corporate world and Larry Summers - a former Treasury Secretary to President Bill Clinton - withdrew after it became clear his nomination would be blocked.

Dr Summers' candidacy was damaged by perceptions by congressional heavyweights that he was responsible for weaker lending standards that contributed to the subprime mortgage crisis.

Investors were also worried that Dr Summers was regarded as a monetary policy "hawk" and might have cut back the Fed's economic stimulus faster than expected.

But the bigger immediate question is if news of Janet Yellen's nomination will temper nerves as the debt ceiling deadline approaches.

The futures market is showing Wall Street will open in positive territory this evening for the first time in two sessions.

But global investors are skeptical on whether the earlier than expected nomination of Janet Yellen will be enough to be considered as any circuit breaker.

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