Professor Janet Yellen testified before the Senate on Thursday, after being nominated the next head of the Fed.
Yellen, 67, provided markets with an impressive presentation, in spite of difficult questions hammered by senators from all sides of the political arena.
Yellen reaffirmed her reputation as a dovish Governor.
When asked by Senator Tim Johnson about the Future of the Quantitative Easing amid slowly recovering job markets, her response was that she “would be strongly committed to working with the Federal Open Market Committee to continue promoting robust economic recovery”.
Yellen continued stressing this dovish line when she later commented that it is “important not to remove the support when the recovery remains fragile”.
Yellen’s words contributed a positive tone at equity markets, however, unlike the optimism we are used to from Bernanke’s comments in the past, markets seem to grasp that QE cannot last indefinitely.
In addition to volatile increases throughout the testimony, the S&P 500 index saw an approximate 1.2% increase throughout the trading day.
A more moderate tone was recorded at the Dow index, which gained only a 0.3% over the previous day and the NASDAQ composite index, which recorded only about a 0.2% increase.
Yellen also said that the quantitative easing could not go on forever, as it created “potential risks for financial stability”.
With an annual Consumer Price Index increase of 1.2%, it is unclear what could stop the fed from printing more cash and infusing that into the economy.
As the Fed’s purchases already contributed to the 36% U.S. Monetary Base growth throughout the year, it would be difficult for Yellen to fend off critics arguing that inflation would pick up when interest rates finally return to pre-crisis levels.