Just in time for what could prove the most severe challenge to the Federal Reserve yet should the U.S. breach the debt ceiling next week, President Obama has nominated Janet Yellen to succeed Ben Bernanke. We expect her to be speedily confirmed despite GOP griping in advance of the formal announcement. In this report, we assess what a Yellen chairmanship – chairwomanship being perhaps the better term – will mean for the panoply of rules facing financial institutions doing business in the U.S., assessing each pending action with strategic impact. We expect her to continue the Tarullo path towards far tougher rules, but to temper these with a greater focus on social-policy and macroeconomic consequences. Data-driven analytics will become an even more critical aspect of FRB micro- and macro-prudential decision-making, along with a greater willingness to intervene in potential asset bubbles and to construct a more utility-like framework for certain critical financial-market functions. Reflecting her long tenure at the central bank, Ms. Yellen will take a strong stand in defending its institutional role in the face of ongoing challenges likely to grow still greater if the FRB is forced to deploy the reverse-repo facility or take other emergency steps in a fiscal crisis.
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