Janet Yellen takes the reins at the US Federal Reserve

published 13 February 2014

Mark Carney's new American counterpart was also in action this week. Janet Yellen, the first woman to head the Federal Reserve, updated the markets on the central bank's assessment of the economy. She repeated her predecessor Ben Bernanke's assurance that interest rates will stay near zero until "well past the time" that the unemployment rate drops below 6.5%.

The Fed previously said it would consider raising interest rates once the rate falls below 6.5%; it is now 6.6%. She will also continue gradually reducing the monthly size of the Fed's money-printing programme.

What the commentators said

By confirming the Fed's shift of focus away from the headline unemployment rate of 6.5%, she "reassured markets" that she was as dovish as they expected, said the FT's James Mackintosh. With inflation currently low, investors think Yellen can stay dovish "even as economic growth delivers higher earnings and keeps the bears away".

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But investors should note that practically everyone is expecting this Goldilocks' scenario. The gap between the highest and lowest growth forecasts is down to levels last seen at the height of the credit bubble in 2007. So if non-inflationary growth doesn't materialise, the scope for an "upset" in the markets is considerable.

An upset is practically guaranteed, as GMO's Jeremy Grantham pointed out. Yellen is part of the Fed tradition of serial bubble-blowing that started with Greenspan and has caused such damage over the past two decades. "It is a totally failed experiment, with enormous pain." The bubble is blowing up right now and the next bust may not be far away. "Will they never learn?"

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.