Yellen Nominated As Fed Chair

As expected, Janet Yellen was nominated by President Obama for Chair ofthe Federal Reserve last week.  Replacing Ben Bernanke, Yellen will step in (assuming Congressional confirmation) while the Fed is in the midst of determining how and when to pull back from its ultra-loose monetary policies.  Deemed a “dove” by most economists, she has been a prominent figure in the construction of the Fed’s quantitative easing program and has argued for easy money policies to continue as the economy struggles to grow.  Aside from her views on monetary policy, her nomination is important with respect to bank regulation, a subject commonly overlooked when assessing the Fed’s role in the U.S. financial system.  While heading the San Francisco Fed branch during the financial crisis, Yellen witnessed first-hand the effect lax bank regulation can have.  Consequently, she has been a strong proponent of more stringent oversight and higher capital requirements.  This continues the theme of balance sheet quality improvement at U.S. banks, which is a positive from a bondholder perspective and fits in with our thesis of owning financial credits that are improving fundamentally.