Janet Yellen - The Most Important Woman in the World?

It has not yet been confirmed at the time of writing, but later today, we fully expect to see President Obama announce Janet Yellen as Ben Bernanke's successor as the Federal Reserve and, with it, the most powerful technocrat in the world.

It has not yet been confirmed at the time of writing, but later today, we fully expect to see President Obama announce Janet Yellen as Ben Bernanke's successor as the Federal Reserve and, with it, the most powerful technocrat in the world.

The decision to announce Yellen is not really a surprise. She is the currently the Fed's No.2 and has been the favourite with the bookmakers since Ben Bernanke announced his intention to step down from the role earlier this year. Apart from a brief flirtation by Obama with Larry Summers, a former Treasury Secretary and close personal friend, the job was always likely to be taken by Mrs Yellen.

Nominations and confirmations, and campaigning if necessary, are the easy parts of any position in public life. It's once you get the job that the pain really starts and Yellen may be forgiven a few second thoughts before taking on the role.

The United States economy, while still the largest in the world, has seen a recovery pockmarked by disappointment against the forecasts of its central bank; GDP and inflation are below target while unemployment remains high.

The recent decision to maintain quantitative easing in the US at $85bn a month due to the Fed's fears that the US recovery is not entrenched, is the first hurdle that Yellen will be forced to clear when she takes the top job in early 2014. We do not believe that we will see any form of asset purchase reduction from the Federal Reserve at the October or December meetings, and so it will fall to the new Chair to explain how, why and when the eventual tightening of monetary policy in the largest economy in the world will take place.

A delay to this 'tapering timeline' is almost assured following the political shenanigans in Washington over the past 10 days or so. The hit to growth of a government shutdown is not huge in simple lost output terms - Goldman Sachs estimate that for every week that the government is under shutdown conditions, output would be negatively affected by around $8bn - but is large in confidence terms.

Indeed, an economic confidence index published by the polling organisation Gallup has seen the largest weekly fall since Lehman Brothers filed for bankruptcy. The index fell more last week than it did in a similar week in 2011 (-9 vs -8), the last time a we had a similar fiscal fight. Confidence is the bedrock of the consumer psyche; without it, the largest component of US output - personal consumption - will be hamstrung.

Yellen is the right person for the job, though, for many reasons. She started her academic life focused on the effects of unemployment on people and the economy. Given the Fed's intrinsic link between employment and interest rates, an expert on the labour market cannot be a bad thing moving forward. Combine this with a decent forecasting record - she has long been viewed as one of the few people to accurately call the genesis of the Global Financial Crisis - and an erstwhile concern of inflationary pressures and you have the makings of a great central banker.

She has proved that already as Bernanke's right hand woman and will continue to do so as Mrs Chairwoman.

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