Obama's Fed nom a good move, but nobody's Yellen about it

by Ryan Smith10 Oct 2013

President Barack Obama’s nomination of Janet Yellen to chair the Federal Reserve – while taking a back seat to news of the continued government shutdown – may be good news for the mortgage industry.

Most investors think the 67-year-old Fed vice chair, unlike previous Obama favorite Larry Summers, would be unlikely to make any radical changes in current Fed Chairman Ben Bernanke’s easy-money policies in the near future. That could mean the Fed’s $85bn-per-month bond-buying stimulus program will remain in place for the time being.

“She was viewed as more dovish toward keeping stimulus in place longer than (Summers) and that was something that bond traders viewed positively,” said Bryan McNee, vice president and senior bond analyst for MBSAuthority.com.

In recent months, rumors that the program might be wound down caused mortgage rates to soar, increasing more than a full percentage point between May and September. The increase in rates killed the refinancing boom, and several big banks laid off thousands of employees in their mortgage units.

When the Fed shocked investors last month by leaving the program in place for the time being, rates edged back down, although not to anything resembling their previous lows.

Yellen has been a proponent of Bernanke’s bond-buying policy, according to a Wall Street Journal report. She’s argued that the Fed needs to continue an economic stimulus program while inflation remains under the agency’s 2% target.

"At present I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment," she said in a March speech.

However, McNee stressed that even as Fed chair, Yellen would be only one member of the institution’s policy-making Federal Open Market Committee – which means the bond-buying stimulus could be rolled back at any time despite her efforts.

“Janet Yellen will not have any more votes than anyone else,” McNee said. “The entire committee voted to not taper (in September). So even if Ben Bernanke was jumping at the desk screaming, ‘I wanna taper, I wanna taper, I wanna taper’ – although he could certainly influence people – he only had one vote.”

However, McNee said, right now Yellen’s nomination is taking a back seat in investors’ minds to the government shutdown and approaching debt ceiling.

“Mortgage-backed securities are effectively unchanged,” he said. “(The market) is not really reflecting the Yellen news at all.”

Still, he said Yellen’s nomination was ultimately a good thing.

“One of the most positive things about her is that with this (shutdown) going on in Washington with everybody at polar extremes from each other, having a known quantity is very reassuring,” he said. “She’s a known quantity, and that’s comforting to the market.”

If confirmed, Yellen would be the first woman to chair the Fed in the agency’s 100-year history.


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