Janet Yellen is no stranger to economics.
She’s held the position of Vice Chair of the Board of Governors of the Federal Reserve System, and has been President and CEO of the Federal Reserve Bank of San Francisco.
During the Clinton Administration, Yellen served as Chair of the White House Council of Economic Advisers.
If you’ve heard her name in the news recently, you’ll know that Yemen has now been nominated by President Obama as Chair of the Federal Reserve.
If she is confirmed, she will be the first Democrat in a quarter century, and the first woman in the history of the United States to hold that position.
Yellen stands to hold a position of extraordinary influence over the U.S. economy. Here’s what you need to know about the person, her strategies, and how it could affect your money.
What the Federal Reserve Does
The Federal Reserve is a government agency that keeps the American financial system in check. The New York Times likens the Federal Reserve to fuel, and the American economy to an engine.
By regulating fuel, the engine’s performance is controlled. Theoretically, at least.
There is a great deal of power within the Federal Reserve. By controlling interest rates, it controls the “cost” of money for consumers.
For example, when the economy is booming, the Reserve can raise interest rates to slow it down or regulate it. When the opposite is true, lowering rates can stimulate economic growth.
But that’s neither here nor there when you consider that the Fed’s interest rates have been set at zero since 2008.
The interest rates that you pay are based on Fed rates, but determined by the lender that extended credit to you.
Why Janet Yellen Was Nominated
In addition to Yellen’s career and experience as an economist, President Obama praised her “renowned good judgment” and named that as a large factor in his nomination.
With the current condition of the American economy, Obama encouraged the Senate to confirm her nomination “without delay.”
It was Yellen’s keen eye that caught the financial and housing issues that nearly devastated the economy in 2008.
But that doesn’t mean everyone is on board. Some Senate leaders believe Yellen might prove to be conciliatory when it comes to policy, but no one is hinting at a block.
How the New Fed Nominee Could Change the Way You Invest and Save
Yellen’s steadfast reputation is earning confidence within the market.
Regardless of who does or doesn’t approve, Forbes sends a reminder that dependability is as important as policy in many ways. They’re calling it The Yellen Effect.
Emerging markets stocks and bonds could see a quick and positive change, since predictability in the American economy gives emerging markets a bigger comfort zone.
The stock market ticked upward with the mere mention of Yellen’s nomination, which is a good indicator of how her reputation is perceived.
What Yellen seems to represent isn’t radical growth or change, but stability, which the American economy hasn’t felt in a very long time.
This brings a potentially healthy environment for startups, says Upstart Business Journal, and IPOs are less of a risk. That’s healthy for entrepreneurs as well as investors.
With more stability, you could consider moving some of your money around, at least for a while, until the tapering begins.
For example, the interest on a savings account won’t compare to that of a short-term money market fund where you could make your savings grow, at least for a while.
Wherever your money decisions lie, Yellen seems to bring few surprises and little radical change. While that might not stir tremendous growth, it also carries a smaller risk of catastrophe.
Mint.com can help you make smart money decisions, whatever your goals happen to be.
Using the innovative budgeting software, you can stay on top of your savings and investments, and receive alerts when there’s something noteworthy taking place such as a change in interest rates.
Mary Hiers is a personal finance writer who helps people earn more and spend less.