Janet Yellen has already made history by being the first woman to head up the United States’ Federal Reserve Bank. But the decisions she makes and the policies the Fed follows under her leadership will have implications for years to come for Americans – and the rest of us. Here’s a look at the potential impacts of Yellen’s appointment on the Canadian economy.
Janet Yellen’s Bio: A Born and Bred Economist
First off, a bit of a background. Yellen earned a economics degree in 1967 and followed that up with a Ph.D in economics from Yale in 1971. That lead to a teaching stint at Harvard. (Teaching economics is something of a family business: her husband, George Akerlof, who won the Nobel Prize for economics in 2001, is a professor at the University of California, Berkley. Their son, Robert Akerlof, teaches economics at the University of Warwick in England.)
From 2004 to 2010 she was the president and CEO of the Federal Reserve Bank of San Francisco. The 67-year-old was officially confirmed at chair of the Federal Reserve on January 6, 2014.
Yellen is often described in the business press as “dovish” for her preference to focus on reducing unemployment even at the risk of raising inflation rates.
“Yellen is no easy-money ideologue,” wrote the CIBC’s Emanuella Enenajor in October 2013. “With the Fed facing the greatest downturn since the Great Depression, Yellen’s dovish views and speeches have simply hewn closely to the Fed’s overall dovish stance.”
Tracking the Taper
The Fed’s main economic direction, the so-called “taper,” was put into place by her predecessor, Ben Bernanke. The name comes from the fact that the Fed is “tapering off” on its purchase of U.S. bonds. The government’s heavy investment in the bond market, known as “Quantitative Easing,” was one of the Fed’s tactic to help prevent the recession from turning into a depression.
Even though her personal biases might suggest Yellen would rather focus primarily on reducing the unemployment rate – which at 7.3 per cent is still higher than historical norms – with concerns over boosting the still recovering health of the overall economy, most analysts perceive that the taper will continue unabated for the near future.
How Will Her Appointment Affect Canada?
Canada has its own version of the U.S. Fed, the Bank of Canada. Coincidentally, the BOC has a new person at the helm as well: Governor Stephen Poloz took over from Mark Carney when the latter cross the ocean to head up the Bank of England.
All national banks operate independently but, given that Canada and the U.S. are by far each other’s largest trading partners, the two biggest North American economies share much more than the world’s longest undefended border.
Both central banks have kept their lending rates at historic lows to avoid pushing more homeowners into defaulting on their mortgages. But if Yellen and the U.S. Fed continue to reduce the amount of bonds they buy, it indicates that both countries are on more solid economic footing.