Friday, April 18, 2014
By Martin Crutsinger
The Associated Press
WASHINGTON — When Janet Yellen makes her first public remarks Tuesday since succeeding Ben Bernanke as Federal Reserve chair, her every word will come under scrutiny.
Will she embrace all of Bernanke’s policies? When will the Fed raise short-term interest rates? Is she worried about the economy or the stock market?
Don’t expect many direct answers when Yellen addresses a House Financial Services Committee hearing. Her replies will most likely boil down to a single overarching point: The Fed will keep all its options open depending on how the economy evolves.
Even so, anticipation of Yellen’s testimony is running high, given concerns about the economy and the job market, turmoil in global markets and uncertainty about her direction at the Fed.
After a rocky 2014 so far, nervous investors will be paying particularly close attention. They want to know whether Yellen might deviate from the message the Bernanke Fed sent late last year: That Fed officials think the economy’s outlook is bright enough to withstand a slight pullback in their stimulus but that rates should stay low to fuel a still-subpar economy.
The occasion is the Fed’s twice-a-year report to Congress on interest-rate policy and the economy. After Tuesday’s House hearing, Yellen will address the Senate Banking Committee on Thursday. Next month, she’ll preside over her first Fed meeting and hold her first news conference.
Yellen, 67, the first woman to lead the Fed in its 100 years, was sworn in Feb. 3 for a four-year term. Yellen spent decades teaching at UC Berkeley, twice winning the top teaching award at Cal’s Haas School of Business; she spent six years running the Fed’s San Francisco region.
As vice chair for three years and long a leading economist, she has given speeches and addressed congressional committees. But as Fed chair, considered the world’s most powerful economist post, the spotlight will burn much brighter.
“A new Fed chair’s first testimony is always a testing period,” said Diane Swonk, chief economist at Mesirow Financial.
Below are issues Yellen will likely be pressed on this week. For each issue, here is what investors would like to hear and what Yellen is likely to say.
OUTLOOK FOR ECONOMY
n Investors: The Dow Jones industrial average has sunk nearly 5 percent this year in part because sectors of the economy like manufacturing have shown signs of weakening. Investors worry that 2014 may not be the breakout year for the economy that many had foreseen. They hope Yellen will signal that she expects a more robust economy in 2014 after 4½ sluggish years of recovery from the Great Recession.
n Yellen: She won’t likely disappoint. It’s the nature of Fed leaders to err on the side of optimism. A downbeat message could derail confidence and potentially send markets tumbling. Yellen will probably refer to what the Fed said in a policy statement last month: Encouraging trends in consumer spending and business investment suggest that growth was picking up – at least before 2014 began. Yellen will surely be asked about the January jobs report, which showed lackluster hiring for a second straight month. She may stress the solid hiring in sectors like manufacturing and construction.
n Investors: Investors have yanked money from emerging economies from Turkey to Argentina. They’ve done so in part because they fear that a pullback in the Fed’s stimulus will send U.S. interest rates up and draw investor money from overseas in search of higher returns. Currency and stock values in emerging markets have dropped. The Fed made no mention of this development in its most recent policy statement, leaving investors unsure how concerned Yellen and the Fed might be.
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