The appointment of Janet Yellen as Fed Chairman has brought little to no surprises. Although it has been a hot topic of discussion in recent months, voters did not openly dispute her appointment. Now, economists, financial experts, and even penny stock traders are trying to predict future developments with Janet Yellen at the helm of the US Federal Reserve. The opinions on Yellen are varied as some experts have openly supported the new leader and others simply see her traveling in the same direction of her predecessor, continuing quantitative easing, or QE, for the foreseeable future.
In all actuality, Janet Yellen and QE are inseparable. In fact, some experts argue that Yellen was the one responsible for the Fed’s controversial QE program. Many economists and financial experts around the country are pessimistic about continuing QE, and Yellen’s ascension exacerbates this sentiment as she continues to defend the stimulus and say it will remain in place and unchanged until economic conditions in the US improve and the economy shows clear signs of steady growth.
While many aspects of QE have come under fire, it is only fair to mention that the asset purchase program has resulted in positive changes. As a result of the program, the US dollar gained in strength against the Euro and the US stock market has reached new highs. Nonetheless, the current Fed situation must be viewed objectively. The US economy has gradually become reliant on QE3, and its withdrawal will cause economic stagnation across the board.
Even Yellen, who is perhaps the biggest proponent of QE, understands the current program cannot go on forever, because it will ultimately threaten the nation’s financial stability. She understands that it is critical to keep QE in proportion and not take it too far. Thus, QE is likely to come to its end too early rather than too late. In fact, the Fed has already begun tapering QE, but it will be quite some time before it comes to an end.
That being said, the new head of the Fed has already emphasized that there are no government plans to scale back quantitative easing, suggesting that the vessel of QE will continue adrift until Yellen spots the shoreline. Needless to say, the current economic situation requires daily monitoring. Yellen cannot abandon QE until clear signs of economic progress become evident. Thus far, economic growth has been disappointing to say the least.
The performance of the current stock market, however, is clearly a bright sign of improvement, but continued high unemployment rates have given rise to doubts regarding the strength of the US economy. While unemployment will continue to pose problems for Yellen, the country’s modest rate of inflation is also cause for concern. According to the new Fed Chairwoman, this is undeniable proof that it is still far too early to further taper economic stimulus measures.
Investors in favor of QE and its soft monetary policy provided strong support for Yellen. Now, they desperately hope the new chairman will keep her word and maintain QE. However, Yellen’s opponents argue that the central bank’s soft monetary policy is inflating the debt bubble, the consequences of which will be felt on a global scale.
Regardless of your viewpoint, Janet Yellen only has a couple of hands to play. If she immediately begins trimming the fat off of the QE program, any abrupt move will have severe consequences for the US economy in the immediate future. On the other hand, if QE is gradually scaled back, the economy may be able to avert disaster and witness short-term improvements.
In any event, it has become quite clear that Janet Yellen is not a proponent of taking radical, tough steps. She has a long history of acting prudently and thoroughly examining the likely consequences of each and every decision.
“I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” said Yellen.
Reading between the lines, this means there will not be any drastic changes to QE in the near future with Yellen at the helm, which is good news to penny stock investors looking to ride the high tide of the current market.