The Herald Bulletin

Morning Update

Nation & World

February 3, 2014

Yellen sworn in as Fed chair, succeeding Bernanke

Janet Yellen officially took over the leadership of the Federal Reserve on Monday — and along with it a delicate task: Unwinding the Fed's extraordinary economic stimulus without spooking investors or slowing a still-subpar economy.

Yellen, the first woman to lead the Fed in its 100 years, was sworn in during a brief ceremony in the central bank's board room. She succeeded Ben Bernanke, who stepped down last week after eight momentous years.

Bernanke is joining the Brookings Institution, a Washington think tank, where he will be a distinguished fellow in residence, Brookings announced Monday.

The economy Yellen inherits is far stronger than the one Bernanke faced in the fall of 2008, when the worst financial crisis since the 1930s erupted. Bernanke spent the rest of his tenure launching and managing an array of programs that are widely credited with helping restore lending and strengthen the financial system and economy after the Great Recession.

Yellen, 67, who served as vice chair under Bernanke, is taking over just as the Fed has begun its first modest moves to scale back its enormous support for the economy. At a meeting last week, the last under Bernanke's leadership, the Fed approved a second $10 billion reduction in its monthly bond purchases to $65 billion.

The first cut was announced at the Fed's December meeting, when it said it would trim its purchases from $85 billion a month, the level for more than a year. The Fed's bond buying has been intended to keep long-term interest rates near record lows to stimulate the economy.

But as the economy has improved, Fed officials have decided it could withstand less help. The Fed is expected to keep reducing its bond purchases this year and end them altogether in December.

If the Fed moves too quickly to withdraw its stimulus, it could spook financial markets and send rates higher. Conversely, paring its bond buying too slowly could risk creating bubbles — that might burst — in real estate, stocks or other assets.

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