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Yellen to Expand Influence             10/30 06:15

   WASHINGTON (AP) -- When the Federal Reserve announced the end of its 
landmark bond buying program Wednesday, it also signaled the start of something 

   The Janet Yellen era.

   Officially, Yellen has been Fed chair since February. But the phase-out of 
the bond-buying stimulus program Yellen inherited from her predecessor, Ben 
Bernanke, truly marks her inauguration. She can now begin to fully stamp her 
influence on the central bank.

   With the job market showing steady gains, Yellen must now grapple with the 
fateful decision of when to raise short-term interest rates, which the Fed has 
kept at record lows since 2008 to help the economy.

   "Janet Yellen's ability to place her mark on the nation's monetary policy is 
only now opening up," said Scott Anderson, chief economist at Bank of the West. 
"It will largely be Yellen" who guides rates back to their historic averages 
from near-zero levels.

   Yellen will also preside over the unwinding of the Fed's vast portfolio of 
bonds, which its purchases have magnified to more than $4 trillion, a record 
high. The bond buying had been designed to keep long-term loan rates low.

   Bernanke's tenure at the Fed was focused on bolstering the financial system 
and rescuing the economy. Yellen's will require a delicate balancing act to 
bring the Fed back to normal: She must withdraw the Fed's stimulus without 
destabilizing the economy.

   "If we're moving to an era where things will become less accommodative, then 
we're in the Yellen era," said Jay Bryson, a global economist at Wells Fargo.

   For Yellen and other Fed officials, the decision of when to begin raising 
rates toward their historic averages hinges on two major economic forces: Jobs 
and inflation.

   A recent hot streak in job growth has shrunk the unemployment rate to 5.9 
percent from 7.2 percent a year ago. Those gains suggest that the Fed may begin 
to lift rates earlier than expected.

   In a statement it issued after ending a policy meeting Wednesday, the Fed 
noted that hiring is strengthening and that the excess of would-be job holders 
is "gradually diminishing." Accordingly, it must eventually withdraw its 

   The statement's mention of "solid" job gains doesn't mean the economy has 
regained full strength in Yellen's eyes --- particularly because pay growth has 
been all but flat and housing has lagged behind the rest of the recovery.

   "There is a long way between saying that and the labor market is healthy," 
said Richard Moody, chief economist at Regions Financial.

   Surges in hiring usually cause prices to rise, yet inflation has remained 
persistently below the Fed's 2 percent target. Muted inflation suggests a 
weaker economy than indicated by the falling unemployment rate.

   The Fed did reiterate its plan to maintain its benchmark short-term rate 
near zero "for a considerable time." Most economists predict the Fed won't 
raise that rate, which affects many consumer and business loans, before June.

   But its confirmation that it would end its bond buying program and perhaps 
move closer to a rate increase suggested the start of a new period for the Fed.

   On balance, economists saw the Fed's statement as showing less concern about 
unusually low inflation, which has helped delay a rate increase. Some analysts 
said the market reaction Wednesday indicated that investors saw the Fed 
statement as at least setting the stage for rate hikes starting sometime next 

   "The trick will be normalizing interest rates without creating another 
recession or unleashing higher inflation or adding to global financial 
instability and financial bubbles," Anderson said.

   Michael Hanson, senior economist at Bank of America Merrill Lynch, said the 
Fed still appears likely to put off any rate increase until at least mid-2015.

   "This isn't the Fed rushing to the exits," he said.

   Hanson noted that while the Fed kept its "considerable time" phrasing, it 
added language stressing that any rate increase would hinge on the economy's 
health. Previously, many analysts had interpreted the "considerable time" 
phrase to mean the Fed wouldn't raise rates for a specific period after it 
ended its bond purchases.

   The Fed's statement was approved 9-1. The one dissent came from Narayana 
Kocherlakota, president of the Fed's regional bank in Minneapolis. He contended 
that the Fed should have signaled its intention to maintain a record-low 
benchmark rate until the inflation outlook has reached the central bank's 2 
percent target. And he argued that the Fed should have continued its bond 
purchases at the current pace.

   Yellen has stressed that while the unemployment rate is close to a 
historically normal level, other gauges of the job market remain a concern. 
These include stagnant pay; many part-time workers who can't find full-time 
jobs; and a historically high number of people who have given up looking for a 
job and are no longer counted as unemployed.


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