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May 13, 2013

A Top Contender at the Fed Faces Test Over Easy Money

The next chief of the Federal Reserve will decide when to reverse the easy-money policies of Ben Bernanke, a judgment that could strangle the economic recovery if made too early or trigger runaway inflation if made too late.

The task could fall to Fed vice-chairwoman Janet Yellen, a meticulous and demanding Yale-trained economist, who issued prescient, early warnings about the housing bust. After the financial crisis, she helped focus the Fed on jobless Americans, with policies aimed at stimulating the economy at least until unemployment falls to 6.5%.

Ms. Yellen is a top contender for the job, assuming Mr. Bernanke steps down when his term ends in January, but her selection is far from certain. She faces a big question among investors: Is she wary enough about the risks of easy money to close the Fed’s credit spigot before financial bubbles emerge or consumer prices rise too far? As a first step, Fed officials have mapped out a strategy that maintains flexibility for winding down its $85 billion-a-month bond-buying program intended to spur the economy. But the timing of the withdrawal is still being debated.”

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Read full Wall Street Journal article here

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