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Health & Fitness

Meet Janet Yellen

Janet Yellen is the incoming Chairperson of the Federal Reserve, and is arguably assuming the top spot at the world’s most influential central bank at a critical point in the institution’s history. At this point, the Federal Reserve has begun to wind down the process of quantitative easing (QE) in a process known as tapering. This, and the marketplace volatility that has recently seized markets, both globally and around the world, has led to large amounts of speculation and debate. At this point in time, with Janet Yellen making her first “public” appearance as Chairperson of the central bank, it is an excellent opportunity to review some of underlying trends that are driving this debate.

Inflation – inflation rates, as reported by government statistics, have been running below average since the financial crisis. New data, however, that includes a broader range of consumer goods, shows a much more rapid rise in inflation with regards to food and other consumer products.

Interest rates – Quantitative Easing has, to some great extent, helped to artificially depress interest rates during the last several years. By purchasing large amounts of government bonds and mortgage-backed securities, the central bank has increased demand for these goods. The greater the demand for interest rates products, the lower the rates they pay.

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Emerging markets – fueled by liquidity (money) provided in large part by the effects of Q.E., emerging markets have been red-hot investments the last several years. As headlines have demonstrated recently, however, the reversal of fortune for these markets has been severe. The high profile leader of the Indian central bank has openly cautioned the Federal Reserve to keep in mind what effects its policies have on emerging markets.

What this means for you and your money:

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With interest rates running, according to many statistics, below historical rates, and lower than average, there have been several impacts on the economy. Lower rates and lower inflation have simultaneously led to lower rates paid on savings accounts, which has helped push many investments into the equity markets (which are inherently more risky than more conservative investments).

Headlines matter, and what happens next will certainly be interesting

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