Dr. Janet Yellen, we have good news and bad news.
The good news: The Senate panel passed your nomination as Fed chief on to the full Senate.
The bad news: See the good news.
Yes, this feisty Bay Ridge native will have a full plate once she’s confirmed.
For one thing, the QE taper will happen on her watch. It has to.
There’s no way that quantitative easing — now in its fourth iteration — can continue.
But as that debt-buying binge unwinds, Yellen, 67, will need to get all the Fed governors on board, speaking with one voice to combat the bond vigilantes.
The markets have a strange way of testing new Fed chairs early on in their tenure. It happened to Paul Volcker, Alan Greenspan and Ben Bernanke, and it will probably happen to Yellen.
One challenge is going to hover around the 3 percent yield on the 10-year Treasury bond.
That’s a price of money that will stunt growth in our economy unless we are really humming, and it will make it more costly for Uncle Sam to finance its bulging balance sheet. It’s also the big bull’s-eye for the bond vigilantes.
If we hit 3 percent because economic growth has accelerated, Yellen will have threaded the needle just right and the economy will not be disrupted; in fact, it could be taken as a sign of health.
But if we hit that mark due to a lack of credibility at the Fed, the US has problems.
Yellen’s second-biggest task will be to find a replacement for the Federal Reserve in the funding markets.
The Fed cannot remain as the centrally planned purchaser of our own government’s debts and obligations.
Nor is it the Fed’s role to underwrite America’s economy. That’s what banks and investment houses are supposed to do.
Socialism doesn’t have a particularly successful outcome around the world, and it sure hasn’t worked in our economy. If it had, the Fed wouldn’t still be buying up $85 billion a month of its own government’s obligations.
I have every expectation that Yellen is up to these daunting challenges, but only time will tell.