to scale back its bond purchases. It concluded that that the US economy wasn't yet healthy enough for the Fed to ease its stimulus even slightly. Fed officials also worried about the budget stalemate that's since led to a partial shutdown of the government and threatens to trigger a default on government debt.
Many analysts now don't think the Fed will reduce its stimulus before next year. And with the dovish Yellen as chairman, the Fed would likely be cautious about any pullback in early 2014.
For now, there's another problem, too. There isn't much official economic data to go on. The shutdown that began Oct. 1 forced the Labor Department to cancel its all-important jobs report for September. It's still unclear when the jobs report will come out.
The choice of Yellen to lead the Fed also comes amid worry and uncertainty about how much damage the shutdown might cause the U.S. economy. Graver yet is fear that lawmakers won't raise the government's borrowing limit this month. If they don't, the government could eventually default on its debt, possibly causing another recession and financial crisis.
As chairman of the Fed, an independent agency that steers clear of Congress' affairs, Yellen can be little more than a spectator.
“There's really nothing she could do about the debt ceiling,'' noted Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.
One especially delicate challenge for Yellen will be to refine the Fed's communications with the public. Bernanke opened the once-secretive Fed to far more public scrutiny. He was the first chairman, for example, to hold regular news conferences. And the Fed went much further to signal its likely policy actions.
This hasn't always gone smoothly. The Fed has sometimes rattled investors instead of calming them. In fact, according to minutes of the Fed's September meeting, Fed officials worried about delaying a pullback in its bond purchases last month because they feared this might confuse investors.
A finely calibrated communications strategy will likely be high on Yellen's list of goals.
Further down the list could be another huge challenge: How and when to start shrinking the Fed's portfolio of bonds.