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Yellen confirmed as US Fed chief, India watchful

world Updated: Jan 07, 2014 11:29 IST
Yashwant Raj
US senate

US senate on Monday confirmed Janet Yellen as the next chair of the Federal Reserve, country's central bank with outsized influence on world economy.

Yellen, 67, also becomes the first woman to head the institution in its 100-year history. In fact, she became on Monday the first woman to head a central bank anywhere in the world.

Taking over from Ben Bernanke on February 1, the silver-haired Fed boss will be watched closely in India especially on the Fed's tapering of its bond-purchase scheme.

The taper kicks in this month, as announced by Bernanke in December, with the Fed cutting its monthly purchase of bonds from $85 billion a month to $75 billion.

The taper refers to the winding down of a Fed scheme to buy bonds worth $85 billion a month to help US economy recover through a steady supply of easy, low-interest money.

Yellen has been a strong supporter of the scheme.

Talk of the taper, triggered by Bernanke himself earlier in 2013, however, had sent the Rupee into a free-fall, which ended only after the Fed did not go through with it in September.

Chastened, and thus better prepared in December, India it was watching the leadership change at the Fed very, very closely, according to past and present RBI leaders.

Asked last September about the fate of Rupee and when it may stabilise, RBI's ex-deputy governor Subir Gokarn told HT that the transition at the Fed would be a factor.

Yellen will be watched even more closely at home.

Though confirmed easily with 56-26 votes, she was way short of Bernanke's 70-30 confirmation vote for his second term in 2010. He was first nominated by former US president George W Bush.

Yellen is the first Fed chair nominated by a Democratic president since Jimmy Carter's 1979 appointment of Paul Volcker, who brought down Natwar Singh in 2005.

Obama welcomed her confirmation saying, "the American people will have a fierce champion who understands that the ultimate goal of economic and financial policy making is to improve the lives, jobs and standard of living of American workers and their families".

However, she was not his first choice.

The president wanted Larry Summers, a close economic adviser who had untimely expended his goodwill with Democrats, because of his intemperate controversial positions.

Described by a former colleague as a "small lady with a large IQ", according to The New York Times, Yellen knows the Fed system well, having served four separate stints there.

She worked there first in the 70s as a staff economist.

Former US president Bill Clinton gave her second stint, as one of its seven governors in 1994. She left in 1996, to chair his council of economic advisers.

Yellen went back to teaching, at University of California, Berkeley, until 2004, when she was named to head the San Francisco reserve bank, her third stint in the Fed system.

She stayed there till 2010, and was among the few Fed insiders who saw the housing bubble, before it burst, bringing on the worst financial crisis since the Great Depression.

The other person one who saw it coming was RBI governor Raghuram Rajan, who, as IMF chief economist in 2005, had warned about the housing bubble and the coming crisis.