Introduction

“The Buck Stops With Me”—Janet Yellen

“The Buck Stops With Me”—Janet Yellen

Based on the remarks Janet Yellen made at the post Open Market Committee (FOMC) meeting press conference on Wednesday, the biggest difference between the Federal Reserve under Ben Bernanke and the Federal Reserve now, is that the buck stops with her.  She feels personally responsible for its successes and failures while she’s at the helm.

That’s great, but that’s not the biggest change that we saw.

Similarities:

1) Bond purchases continue to be tapered. Assuming they keep the same schedule, the Federal reserve will be done growing its balance sheet by the end of this year.

2) The Fed Funds rate remains at near zero.

3) The chairman states there is no preset course in determining when rates should begin to rise, but most agree it will begin in 2015.

Differences:

Bernanke gave us a 6.5% unemployment number to use as a guide for that rate rise. Yellen has lowered that considerably. She would like to see us at full-employment (wouldn’t we all) and believes that the recent drop in the unemployment rate has more to do with discouraged job-seekers dropping out of the hunt than anything else.

Full employment is a range generally considered to be between 5% and 6% which is considerably less than the 6.5% guidance Bernanke gave. That is subject to change again, though.

A particularly harsh winter has slowed economic growth and  inflation is stubbornly remaining below the 2% target. Current expectations (subject to change) are for short-term interest rates to start rising in 2015; to be 1.0% by the end of 2015 and to end 2016 at about 2.25%.