Continuing to release billions of dollars into the world economy is still the consensus medicine prescribed by the central bankers of the US’ ailing domestic economy. It helps that Yellen’s academic focus in life has been unemployment. Heretically for monetary policy-makers, she has argued for a tolerance of inflation if it helps keep jobless rates down.
The orthodoxy surrounding quantitative easing is a mixed blessing for emerging economies like India.
Yellen, by most accounts, will not necessarily sing a different tune about monetary tapering than the present governor, Ben Bernanke, but she is likely to roll out a more consistent and predictable melody.
This will help mitigate the fallout of the slow drop in liquidity that everyone expects to afflict the global economy in the coming months. The best of all solutions would be for New Delhi to be in a position to be unconcerned about what the US central banker was thinking. That would require India to get its own economic house in order.
Yellen will not officially take office until next year. It says something that no one is quite certain what her inheritance will be.
She may end up managing the tail-end of the tapering, the last vestiges of the subprime financial crisis. She could also end up crisis managing the blowout of a US sovereign debt default — a global upheaval that would dwarf the 2008-09 crisis.
That would be the sort of test of not merely Yellen, but the entire US financial and political system, that will hopefully never come to pass.