Janet Yellen takes the reins at the US Federal Reserve

Janet Yellen has sought to sooth market worries in her new role at the head of the Federal Reserve.

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".

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?"

Recommended

US stimulus checks – will you get one?
US Economy

US stimulus checks – will you get one?

To help fight high inflation and financial hardships, some US states have started to send stimulus checks to support residents. Here’s what you need t…
14 Nov 2022
US inflation drops to 7.7%
US Economy

US inflation drops to 7.7%

Costs for rents increased, but the price of cars, clothes and medical care helped slow the rate of inflation in the US
11 Nov 2022
Federal Reserve hikes interest rates to 4%
US Economy

Federal Reserve hikes interest rates to 4%

The Federal Reserve continues its battle with inflation with another bumper interest rate hike.
3 Nov 2022
US inflation remains higher than expected
US Economy

US inflation remains higher than expected

US inflation fell by 0.1% but remains higher than expected due to the rising cost of food, shelter and medical care.
14 Oct 2022

Most Popular

Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Stock market crash? This time it’s (slightly) different
Stockmarkets

Stock market crash? This time it’s (slightly) different

The bears expecting a stock market crash have got it wrong, says Max King.
30 Nov 2022
Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022