The Senate on Monday approved Janet Yellen to become the next chair of the Federal Reserve. She currently serves as Fed vice chair and previously worked as head of the San Francisco Fed.
The recent string of positive economic news could turn into a headache for Yellen as she takes the reins at the Federal Reserve.
Despite misgivings over current Fed direction, Yellen seemed a sure choice to succeed current Chairman Ben Bernanke, who began his term in 2006.
She faces an immediate challenge that will test her communication and policy skills.
With gross domestic product growth above 4 percent and the stock market roaring along—save for Thursday's year-opening sell-off—the new central bank chief could have a harder time justifying the Fed's crisis-era monetary policy.
"With growth (in 2014) to the mid-3s and potentially higher, you're actually adding accommodation to the economy," said Joe LaVorgna, chief U.S. economist at Deutsche Bank. "Yes, you're slowing the pace of the buying, but the balance sheet is still growing. It's staggering to me. I just don't see how they're going to get out in a clean way."
The Fed indeed does intend to ease the pace of its monthly asset purchase program—quantitative easing—from $85 billion to $75 billion, but the balance sheet will continue to grow, after ending 2013 at just more than $4 trillion.
Simultaneously, the Fed is holding its target funds rate near zero, a level it has maintained since the onset of the financial crisis in late 2008.
As Yellen gets ready to succeed outgoing Chairman Ben Bernanke when his term expires Jan. 31, coming up with a viable communication strategy is likely to be at the top of her priority list.
