Updated February. 05, 2014 07:12
The new chair of U.S. Federal Reserve is put to the test. The first woman to run the central bank in its 100-year history, Janet Yellen took office Monday when the global financial markets jolted on concerns of financial crisis in emerging market economies and slowdown in U.S. economy. The Dow Jones Industrial Average plunged more than 2 percent as investors shunned risk.
Yellen faces the immediate task to display the Wisdom of Solomon in carrying out monetary stimulus tapering measures in a way that they do not hamper the world`s economic recovery. Time magazine in its latest issue said Yellen "took the post of chairwoman at a critical moment as the central bank debates how quickly to taper its expansionary monetary policies." In December last year, the U.S. central bank decided to cut its monthly bond purchases by 10 billion U.S. dollars to 75 billion dollars, further cutting 10 billion dollars to 65 billion dollars in January this year.
Some market analysts say the Fed`s decision was hasty, triggering crisis in emerging market economies. Many within the Fed, however, considers the Fed as the central bank of the U.S., not the world`s. Yellen will have to be cautious in reducing the pace of tapering by balancing the power between hardliners and moderates.
Another task is to decide when to raise the benchmark interest rate. The Fed had pledged to keep the rate near zero until unemployment falls to at least 6.5 percent, which means a rate increase could be imminent. Jobless rate was 6.7 percent in December last year and prospects are that it will fall to 6.6 percent in January. Yellen must be thinking of when to begin raising rates. She will announce her first policy blueprint through a semi-year monetary policy report due for submission to the House of Representatives on next Wednesday.