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MOVERS & SHAKERS CONTINUED FROM PAGE 36 Senate Confirms Presidential Nominee Mel Watt, Schedules January Vote on Janet Yellen Commentary: Market's Fed Frenzy Can Finally End By Scott Minerd, Global Chief Investment Officer, Guggenheim Partners Congressman Watt voted in as director of FHFA. Yellen expected to take reins from Bernanke in January. Following a play by Democrats to undermine Republicans' filibuster powers, the U.S. Senate voted last month to confirm Rep. Mel Watt (D-North Carolina) as director of the Federal Housing Finance Agency (FHFA). The vote concludes a debate that started in May, when President Obama nominated Watt to replace Edward DeMarco, who has served as the agency's acting director since 2009. The confirmation vote first went to the Senate floor in October, but lacked the votes to go forward. The December vote was 57-41 in Watt's favor. All Senate Democrats voted for confirmation; they were joined across the aisle by Sens. Rob Portman (R-Ohio) and Richard Burr (R-North Carolina). With Watt's confirmation, analysts at Barclays anticipate another discussion on the topic of principal forgiveness—a move DeMarco famously opposed, earning praise and criticism alike— and another possible extension of the Home Affordable Refinance Program (HARP). While Barclays noted Watt's support for the administration's housing policies may represent a "policy risk," analysts for FBR Capital Markets say a more supportive approach to borrowing could be a boon for credit availability. The Senate Banking Committee voted to approve Janet Yellen's nomination to chair the Federal Reserve, bringing Yellen one step closer to being the first woman to serve as head of the country's central bank. The committee approved Yellen's nomination by a vote of 14-8, sending it to the Senate floor for a final vote. Currently serving as the Fed's vice chair, Yellen is viewed by many on Wall Street as a "dove" on monetary policy who is more concerned with unemployment than inflation. In her nomination hearing before the committee on November 14, she defended steps the Fed took to stabilize the economy following the economic crash, putting an emphasis on the number of jobs regained. Like her predecessor, Ben Bernanke, she is expected to push for accommodative monetary policy as the economy slowly recovers. With Senate Democrats and several Republicans supporting her nomination, Yellen's confirmation seems likely. In remarks given at the committee hearing, Senate Banking Committee Chairman Tim Johnson (D-South Dakota) praised Yellen, calling her "a model candidate for chair of the Fed." A vote on Yellen's confirmation is set for January 6. VERBOSITY "Today's confirmation of Mel Watt represents an important step for our housing market's continued recovery. After decades in both the public and private sectors, Mel has developed a proven track record of protecting consumers, fighting abuses, championing economic growth and working across the aisle on important issues that benefit the common good. He brings a wealth of experience and dedication to his new position as Director of the Federal Housing Finance Agency. I am confident that his tenure will be marked by progress. I look forward to working closely with Mel to further stabilize and strengthen the housing market so that it provides opportunity for all responsible families." —HUD Secretary Shaun Donovan on December 10, 2013 38 Maybe now the Fed Frenzy can end. After months of market jitters about when the Federal Reserve would start tapering quantitative easing (QE), we now know the central bank will trim its asset purchases by $10 billion monthly, starting in January. . . . [W]hether the Fed tapered now or in a few months would make little difference to the big economic picture. The change of Fed policy, the swan song for outgoing Chairman Ben Bernanke, is based on the belief that the U.S. economy's expansion is sustainable and that the labor market is improving amid muted inflationary pressures. The Fed's statement after its two-day meeting [on December 18] was exceptionally dovish. Incoming Chair Janet Yellen has made it clear that the Fed's primary policy tool in 2014 will be forward guidance, or signaling clearly to markets how it plans to act in response to economic variables. Crucially, the Fed said it will keep interest rates near the zero-bound well past the time it takes for unemployment to fall below its previous threshold of 6.5 percent. In addition, the Fed has added a 2 percent lower bound for inflation, below which it is unlikely to begin raising the federal funds target rate. Both the employment language and the interest rate focus push out the time frame for a rate increase longer than investors had previously expected. As markets consider the roadmap to exit the unprecedented policies of the Bernanke era, it is worth remembering that in addition to prolonged, low interest rates there is plenty of Fed stimulus left. If the Fed continues the same pace of asset purchase reductions at each FOMC [Federal Open Market Committee] meeting, it will still purchase more than $500 billion of bonds before QE would end in early 2015. It may purchase a greater amount, or prolong quantitative easing, if the economic recovery is more jagged. To put that in context, the Fed's second round of quantitative easing, from November 2010 to June 2011, amounted to $600 billion.

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