Wednesday, June 18, 2014

Perceptions of Federal Reserve Chair

Janet Yellen, the Chair of the U.S. Federal Reserve Bank answered questions today after a meeting of the Fed and a release of the monthly Fed statement of intent.

It occurred to me that a lot of what the markets and what onlookers and decision makers get from press conferences Q/A sessions is a visual portrait of the Federal Reserve as represented by the image of the Chair of the Fed.

What was the gestalt image of past Fed chairmen?

I remember Paul Volcker as a large man. I remember and have heard that the markets had a fear of Volcker. He was tough and would shake things up. He raised interest rates mercilessly and killed inflation in the 1980's.

Alan Greenspan was something of an academic. He is known for his verbal contortions that left markets wondering what he actually meant to say. But he kept interest rates low. The phrase "Greenspan put" was coined to represent the fact that Greenspan would lower rates to keep markets calm whenever needed. He had a Yoda-like quality. We just knew that he knew what was best for the U.S. economy.

Ben Bernanke. Also known as an academic, presided over the aftermath of the great financial crisis. Bernanke was a student of the Great Depression of the 1930's and was expected not to make the same "mistakes" that prolonged that economic downturn. Namely by raising interest rates too soon.

Janet Yellen. Bernanke's successor and former vice-chair of the Fed. So far the image is of a soft spoken person with a liberal outlook regarding monetary policy. Yellen's image fits her reputation.

The question in the back of my mind is whether the world can stay confident in this latest Fed chair. The financial world expects the Fed to take the necessary steps to control inflation if and when it rears it's head. Inflation is a monetary phenomenon. Meaning that if a currency stays strong, inflation is low.
Will the world keep confidence in the U.S. Dollar. Will a break in confidence cause inflation and would a lack of confidence in the Fed Chair cause the break?

I have no conclusions. Just questions.


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