Thursday, 10 October 2013

The Problem is not the Fed´s Chair, It´s the Fed

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Janet Yellen has just been nominated by Barack Obama to replace Ben Bernanke as chairman of the Federal Reserve. Ms. Yellen is a well-known and respected economist. Her research, some of which pertains to the benefits of trade liberalization, is regarded highly. She has ample experience working for the Federal Reserve System, having 12 years of experience dating back to 1997. Most recently she has been the Vice Chair of the Fed´s Board of Governors, an imminent position within the organization.

By all counts, she is the right woman for the job.

The only problem with being the chairman of the Fed is that it doesn´t matter how qualified you are – you are taking the reins of an inept institution. In short, any problem that you can find fault with in the Fed is because of the Fed, not the people running it.

Consider the role of the Federal Reserve. Generally speaking it has a two-pronged mandate: promote price stability (now paradoxically defined as low and steady inflation) while pursuing full employment. Ms. Yellen is widely acknowledged to be a “dove”, one who is more concerned with the latter than the former. The fact of the matter is that it doesn´t matter which goal the Fed chairman favours. At the end of the day the task comes down to a much narrower tool.

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