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CPBJ Extra Blog

Looks like Janet Yellen won't start the taper anytime soon

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More of the same. That's what it looks like we'll be getting with Janet Yellen when she likely succeeds Ben Bernanke as the head of the Federal Reserve.

In Thursday’s confirmation hearings before the Senate Banking Committee, Yellen may have expressed somewhat different philosophies than the man she has served under for three years as the vice chairwoman of the Fed — and may be able to correct some of his wrongs — but overall it sounded like her practices will line up with the way Bernanke ran the department and spearheaded economic recovery efforts.

In a prepared statement before the hearings even started, Yellen said she agreed with Bernanke’s stimulus plan of bond-buying despite the risk of future inflation rates.

She also said she’s more worried about unemployment than future inflation risks.

“Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential,” she wrote in her introductory statement.

That leaves financial markets wondering the same thing they have for months: When will the dreaded “taper” start to happen? When the Fed will decrease its bond purchases?

Originally expected to happen in September, Bernanke instead decided to keep the bond-buying levels at $85 billion a month. The bond purchases have fueled economic growth in the markets — the Dow Jones Industrial Average and the S&P 500 were at record-high levels this week — even if the economy on the street hasn’t fully recovered yet.

Yellen doesn’t seem ready to start the taper.

“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” she said in her opening remarks. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

Sooner or later, the Federal Reserve will start to taper the bond-buying. We know it’s coming. We know it needs to come at some point so the economy finally can stabilize and all will be right with the financial world.

We just don’t want the taper to happen, because we know once it does, this period of turbulent investing success over the last year or so will also taper, and we’ll all have to suck it up (again) until the final stabilization occurs.

I’m scared enough about the ramifications to give the go-ahead to the Fed to keep up the bond purchases for a while. Whether that’s a good or a bad thing is for the history books to tell us.

Or for you to tell us in the comments ...

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