Oct. 09--President Obama's decision to install arch-dove Janet Yellen as the world's most powerful central banker failed to dispel the shadow of the US debt ceiling crisis looming over global markets today.
Federal Reserve vice-chairman Yellen a supporter of the Fed's $3.4 trillion (pounds sterling 2.1 trillion) money-printing programme, will be the first woman to lead a major central bank when she succeeds Ben Bernanke next year and is widely seen as the continuity candidate.
Yellen was the overwhelming favourite for the post after former Treasury Secretary Larry Summers pulled out of the race last month fearing a politically damaging confirmation process. Yellen's support for quantitative easing has raised some criticism among hardline Republicans but she expected to be largely unopposed by the Senate.
Obama's choice, however, did little to settle the nerves of global stock markets as the US shutdown enters its second week. The deadlock between the White House and Congress over raising the nation's $16.7 trillion debt ceiling brings the prospect of a potential default by the world's biggest economy a step closer. Obama warned last night that "there is no magic bullet" to resolve the impasse.
London's FTSE 100 was on the back foot again, losing 29.91 points to 6335.92, and leaving the blue-chip benchmark bearing losses of 3 percent in the past two weeks. Markets in France and Germany also fell although Spanish and Italian bourses made slight gains.
Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: "Yellen is the steady-as-she-goes candidate but the uncertainty over the debt ceiling is overshadowing everything at the moment." Mike van Dulken, head of research at Accendo Markets, added that the "fiscal stand-off is trumping even news of continuity at the Fed".
Eimear Daly, head of market analysis at Monex Europe, added: "Yellen will maintain monetary easing when the economy is weak, but isn't afraid to tighten policy when the time comes." Policymakers have also been starved of much economic data due to the shutdown, making it more difficult to assess the progress of the world's biggest economy. The Fed numbered the deadlock among its concerns last month as it opted against slowing its $85 billion-a-month stimulus programme and many experts now believe policymakers will keep their foot on the accelerator into 2014.
M&G analyst Jim Leaviss said the shutdown "has an economic impact that should not be underestimated". "An already dovish Fed and a very low core inflation rate makes tapering in 2013 unlikely and turns it into a story for 2014," he said.
The US cost of borrowing for 10 years edged lower as investors sought safer assets. But the yield on shorter-dated Treasury bills likely to be affected by a default _ so-called Hallowe'en Bills due to the date of their maturity _ has spiked sharply.
The bills yielded just 0.02 percent a month ago but has climbed to 0.27 percent as the potential crisis draws nearer.
(c)2013 London Evening Standard
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Distributed by MCT Information Services
Original headline: Yellen move fails to lift Obama's debt-ceiling gloom
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