Tags: janet yellen | federal reserve | House Financial Services Committee | Congressional testimony

Did Yellen Campaign for Obama?

By    |   Thursday, 26 Feb 2015 05:57 AM


Federal Reserve Chairman Janet Yellen had another eventful day on Capitol Hill as she appeared before another congressional committee bent on reforming the Fed, the House Financial Services Committee, chaired by Rep. Jeb Hensarling, R.-Tex., on the Fed’s semi-annual report on monetary policy.

Perhaps the most insightful comment of the day came from bullish economist Edward Yardeni when he told CNBC he remembered his days as a student at Yale, six years behind Yellen, that her work on the inadequate response to the Great Depression circulated among the students.

His conclusion was that the Fed’s patience in raising the Federal Funds Rate is likely to continue beyond whatever date the FOMC chooses to begin raising rates. (The question this writer has been asking is whether financial markets will accommodate this patience or whether the Fed will lose control of the timing of the rise in rates or some destabilizing market response will occur.)

As was the case at the Senate Banking Committee, Members spent considerable time searching for levers they use to gain influence over the Fed’s regulatory agenda under enhanced powers Senate Banking Committee Chairman Richard Shelby, R.-Ala., has said have turned the monetary authority into a “super-regulator.”

In his opening statement Hensarling complained that the economy is suffering from burdens of Obamacare, Dodd-Frank, and higher taxes that monetary policy cannot remedy and while Chair Yellen meets twice a year with each banking committee, she meets weekly with Secretary Lew yet protests that proposals to reform the Fed would compromise the Fed’s independence. Hensarling assured Yellen that this is not the case and vowed to proceed with reform.

Other senior Republicans further developed the issue of Fed independence. Rep. Bill Huizenga, R.-Mich., asked Yellen to provide summaries of the meetings with Secretary Lew, but Yellen objected that the meeting were not about monetary policy. Rep. Scott Garrett, R.-N.Jer., listed seven examples of the Fed making partisan political decisions, including the meetings with Lew.

The climax came when Rep. Sean Duffy, R.-Wis., accused Yellen of making a speech on income inequality two weeks before the 2012 election and Yellen responded that she did not consider the speech to have been partisan. Duffy pressed the point that everyone knows which party was espousing the theme of income inequality, but Yellen insisted she did not know this.

Implicitly the controversy over the Fed’s independence raises the question of whether the Fed should be independent at all. The late Robert Weintraub, who conceived the semi-annual hearings, told this writer he thought accountability would be better served if monetary policy were made directly by the Treasury, so that voters would have a voice in monetary policy.

As was the case on the Senate side, Democrats, led by Reps. Maxine Waters, D.-Calif., and Michael Capuano, D.-Mass., pressed for assurance that the Fed will not back down from its responsibility under Dodd-Frank to require the largest banks to submit credible “living wills.” It looks like legislators from both parties will be watching the Fed closer for the next two years.

(Archived video can be found here. Chair Yellen’s statement and the staff memorandum can be found here.)

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Robert-Feinberg
Federal Reserve Chairman Janet Yellen had another eventful day on Capitol Hill as she appeared before another congressional committee bent on reforming the Fed, the House Financial Services Committee, chaired by Rep. Jeb Hensarling, R.-Tex., on the Fed’s semi-annual report on monetary policy.
janet yellen, federal reserve, House Financial Services Committee, Congressional testimony
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2015-57-26
Thursday, 26 Feb 2015 05:57 AM
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