The Federal Reserve Chair Janet Yellen term is going to end in 2018. Janet L. Yellen took office as Chair of the Board of Governors of the Federal Reserve System on February 3, 2014, for a four-year term ending February 3, 2018. She has vowed not to retire before the end of her term. Amid expectations that the president-elect would step up political pressure on the Fed after he takes office in January, there was chatter that Yellen might just step aside. “No I cannot,” she said when asked by Rep. Carolyn Maloney if there were circumstances under which she might leave before her term expires. “I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term.” The three potential successors of Yellen are Glenn Hubbard, Kevin Warsh and John Taylor. All these three potential candidates for FED Chairmanship, recently criticized the monetary policy being followed by the FED terming it as an overly loose policy.
“The term “monetary policy” refers to what the Federal Reserve, the nation’s central bank, does to influence the amount of money and credit in the U.S. economy. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy. The goals of monetary policy are to promote maximum employment, stable prices and moderate long-term interest rates. By implementing effective monetary policy, the Fed can maintain stable prices, thereby supporting conditions for long-term economic growth and maximum employment.” Federal Reserve.
An effective monetary policy translates in to positive economic impacts through factors such as inflation, output and employment. U.S. monetary policy affects all kinds of economic and financial decisions. From Consumer loans to mortgages or auto loans or to establish a new start up, or to develop an established business further by undertaking capital budget decisions, and or to put savings in a bank, in bonds, or in the stock market. Moreover, since the U.S. is one of the major economies in the world, its monetary policy also has significant economic and financial implications for other countries of the world.
After the 2008 financial crisis, the FED followed an expansionary monetary policy by keeping the interest rates lower in order to stimulate economic growth by boosting private sector borrowing and consumer spending. But now the potential successors of Yellen are criticizing this expansionary monetary policy.
Stanford University economist John Taylor said that the Fed “is a little behind the curve” when it comes to raising rates. Columbia University’s Glenn Hubbard, speaking on the same panel, agreed. “The Federal Reserve was very successful in the initial period after the crisis but continued a policy perhaps past its shelf life,” he said. Kevin Warsh, another Stanford economist, said that the Fed should have raise rates earlier and had focused too much on the short-term economic outlook.