Q and A: What can we expect from Yellen?

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she a hawk or a dove?

A Yellen is considered a dove – that is, she is expected to be happy to keep the printing presses on until unemployment falls substantially, with little regard for inflation.

Q What impact will that have?

A Markets will enjoy her appointment, as more money printing means higher bond and equity prices. She will also help keep interest rates low. However, sceptics fear such loose policy keeps investors hooked on cheap money and could build up risks in the economy.

Q And what about the wider world economy?

A Western countries will probably be pleased as they will be dragged up by a continued strong recovery in the US. But there is a risk that her appointment will cause uncertainty in emerging markets. When outgoing chairman Ben Bernanke announced he would start slowing down the pace of money printing, money flowed out of emerging markets and into the US. If she delays the taper, funds could flow back and forwards as market expectations adjust.

Q Was she always a dove?

A No. In the mid-1990s she took on then-Federal Reserve chairman Alan Greenspan, pushing for a rate hike to stop a credit bubble getting out of control and overheating the economy.

Q What is her history on crises? Did she see the financial crisis coming?

A Not really. Yellen gave speeches on the housing market in 2005 noting a small risk, but said a bursting housing bubble “could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock.” In early 2007 as the market slowed she said “I believe that a soft landing is the most likely outcome over the next year or two.” And even as the sub-prime crisis struck, by September 2007 Yellen still thought there was a good chance of recovery. “Past experience does show that financial turbulence can be resolved more quickly than seems likely when we’re in the middle of it. Moreover, the effects of these disruptions can turn out to be surprisingly small,” she said.