The Federal Reserve’s decision Wednesday to begin reducing its signature bond-buying program removes one big item on Janet Yellen’s to-do list when she likely takes the reins in February, but she is still inheriting a job with numerous challenges.
The Senate is expected to confirm Ms. Yellen to be the next Fed leader this week, paving the way for her to take over from Chairman Ben Bernanke when his term ends Jan. 31. Her first policy meeting as chairwoman would be in March. The handoff comes at a tricky time.
Now that the Fed has begun to wind down its bond-buying program, it will fall to Ms. Yellen to decide if economic conditions warrant continuing to pare the purchases or not. She will also have to decide whether and how to tweak the Fed’s promises to keep interest rates near zero for a long time if the economy fails to recover as the Fed now forecasts. And she will also have to decide how to respond if inflation remains stubbornly below the Fed’s 2% target.