Mohamed El-Erian predicts few fireworks from Janet Yellen’s confirmation hearing on Thursday. He wrote for CNBC on Wednesday that her testimony should remind us of five things.
First is that she is very qualified, he wrote. “Look for the discussion to highlight in particular her solid academic foundation, extensive policy experience, and sound judgment over many years — all of which speak to a smooth and credible leadership transition at a particularly tricky time for the Federal Reserve.”
She is also committed to the current policies coming out of the Fed, and El-Erian wrote that investors should expect “evolution rather than revolution.”
Similarly, she’s likely to maintain the “collegial approach to decision-making” established by Chairman Ben Bernanke. “This is consequential at a time when conditions on the ground will inevitably call for complex judgment calls, and when markets are likely to take badly signs of material differences within the Federal Open Market Committee,” he wrote.
While El-Erian acknowledges that it would be best if lawmakers could agree on policy, he wrote that Yellen “does not consider inaction on the part of other policy-making entities a deal breaker.”
Finally, El-Erian believes Yellen is confident that regulatory efforts aren’t overreaching to the point that they can hinder monetary stimulus.
“If Thursday’s hearing does indeed deliver on these five hypotheses, markets can look to a continuation of the Fed’s current policy stance for now,” El-Erian wrote. “When the time for taper comes, as it inevitably will, the central bank would partially compensate through more aggressive forward policy guidance. In doing so, it would also specify an additional set of intermediate policy targets.”