Tags: janet yellen | federal reserve | senate | hearing

Senators Spar at Yellen Hearing

By    |   Wednesday, 25 Feb 2015 12:58 PM


On February 24, the Senate Banking Committee held a hearing to received the Semiannual Report on Monetary Policy from Janet Yellen, chairman of the Federal Reserve Board.

The way these hearings are set up, the Senate and House alternate as to which goes first, so this hearing had the potential to be the best of the four that will be held this year.

As one who has followed these hearings since they were a gleam in the eye of Robert Weintraub, a congressional staffer who was a former student of Milton Friedman eager to find a way to hold the Fed accountable for monetary policy, this hearing could go down as one of the best ever.

The reason is that not only did the hearing provide a thorough airing of the monetary policy options under consideration at the Fed, which have been widely aired in the press; it also provided a forum for senators to express frustration with the way the Fed and his staff have been handling, and often mishandling, the regulation and supervision of the largest, riskiest banks.

As widely reported, Yellen repeated her message that the Fed will be “patient” in deciding when the improvement in economic indicators warrants action by the Federal Open Market Committee (FOMC) to begin raising the Federal Funds Rate (FFR) back toward more normal levels. She said the FOMC will give “forward guidance” to signal that a raise could occur at any meeting.

What is especially noteworthy about this hearing is the impromptu debate Yellen’s testimony set off between Sen. Chuck Schumer, D.-N.York, and Sen. Pat Toomey, R.-Penna., on the merits of the Fed’s longstanding policy of monetary accommodation.

Schumer urged Yellen to wait until sufficient improvement in wages occurs before raising rates.

As discussed in other articles, Schumer’s stance is especially significant since he is admittedly the senator closest to Wall Street.

To Yellen’s credit, she reminded Schumer that the Fed’s low-interest-rate policy has been in place for six years. For skeptics and cynics who doubt the Fed can ever raise rates, this forthright expression of Wall Street’s interest reinforces their concern.

Coincidentally, Toomey immediately followed, stating that he disagrees with Schumer, that he believes the financial crisis has been over for six years and the Fed should not keep in place the measures that were justified as responding to the crisis.

He lamented that savers, including retirees, have been denied a return, and he argued that the improvement in the economy the Fed has touted represents economic activity shifted from future years.

The other major, and perhaps historic, development at this hearing was the questioning by some senators from both parties of the structure of the Fed and the procedures by which it makes and executes regulatory policy.

Especially unusual was the singling out by Sen. Elizabeth Warren, D.-Mass., of the Fed’s general counsel for criticism over whether he can exercise power directly or whether he is acting on behalf of the Board of Governors.

In his opening statement Chairman Shelby announced that the committee will begin hearings next week on the role of the Fed as “super-regulator” that it has established in the wake of the 2008 episode of the financial crisis.

(Archived video and witness testimony can be found here.)

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Robert-Feinberg
What is especially noteworthy about this hearing is the impromptu debate Yellen’s testimony set off between Sen. Chuck Schumer, D.-N.York, and Sen. Pat Toomey, R.-Penna., on the merits of the Fed’s longstanding policy of monetary accommodation.
janet yellen, federal reserve, senate, hearing
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2015-58-25
Wednesday, 25 Feb 2015 12:58 PM
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