Yellen intends to stay the course
The Federal Reserve’s new leader, Janet L. Yellen, signaled that the central bank is likely to keep scaling back its signature stimulus program despite a recent string of weak economic data.
Making her first congressional appearance since succeeding Ben S. Bernanke this month as Fed chair, Yellen told lawmakers Tuesday that she was surprised by the weak job gains reported for December and last month. But citing weather and other factors, she said one should not jump to conclusions.
Yellen also gave no indication that she was worried about the volatility in global financial markets, saying that at this point they did not pose a major risk to what she described as an ongoing moderate U.S. recovery.
Not all analysts are so confident, but Yellen’s relatively upbeat take on the outlook for the economy -- and her steady performance in a marathon, daylong session with lawmakers -- was welcomed by investors. Stocks surged, extending the rally to a fourth straight day.
“The market needed some continuity of leadership,” said Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management in Portland, Ore. “I think she nailed it.”
In her prepared remarks, Yellen pledged just that -- “a great deal of continuity” -- in the central bank’s monetary policy. As vice chair under Bernanke, she had a big hand in crafting the bond-buying stimulus and the decision in December to start a gradual withdrawal of the $85-billion-a-month purchase of Treasury and mortgage securities, a program aimed at pushing down home-loan and other long-term interest rates.
Fed officials began in January to reduce the bond-buying by $10 billion a month, followed by another $10-billion cut this month. Bernanke indicated before his departure that policymakers intended to stay the course unless the outlook changes substantially.
Yellen reinforced that thinking in her testimony before the House Financial Services Committee.
The Fed “will likely reduce the pace of asset purchases in further measured steps at future meetings,” she said. The Fed’s next policy meeting is in mid-March.
It wasn’t just in substance but also in style that Yellen sounded a lot like her scholarly predecessor as she carefully weighed a wide range of sometimes antagonistic questions and calmly provided responses.
Rep. Jeb Hensarling, the conservative Republican from Texas who chairs the committee, opened the hearing by congratulating Yellen, then launched into questioning the Fed’s monetary policymaking by demanding to know whether sensible central bankers, to use Yellen’s terms from a previous public comment, followed rules.
“Are you a sensible central banker, and if not, when will you become one?” Hensarling asked. Yellen replied: “Congressman, I believe that I am a sensible central banker, and these are very unusual times.”
Several other Republican lawmakers pressed Yellen, the first Democrat to head the Fed in three decades, on her views about a perennial effort by some lawmakers to audit the Fed. An audit was long championed by now-retired Rep. Ron Paul (R-Texas).
Like Bernanke, Yellen insisted that the Fed’s finances and policies were already transparent and that an audit of the monetary policymaking process would jeopardize the institution’s independence from political pressure.
Throughout the hearing, Yellen was praised by lawmakers for being the first female leader of the 100-year-old Fed.
“It’s wonderful to say ‘Madam Chair,’ ” Rep. Gwen Moore (D-Wis.) told her. Rep. Gregory W. Meeks (D-N.Y.) said: “Your historic ascension to the position speaks volumes for our nation ... and will be another source of inspiration for young women like my three daughters.”
Some Fed analysts viewed the repeated references to Yellen’s gender as sexist: At one point the Fed chair was referred to as “gentle lady.”
Yet Yellen politely acknowledged those remarks during a nearly six-hour exchange as part of the Fed’s semiannual report on monetary policy and the economy to Congress. She meets with the Senate Banking Committee on Thursday.
Diane Swonk, chief economist at Mesirow Financial in Chicago and a longtime Fed watcher, said Yellen’s performance confirmed the view of her as “unflappable.”
“They tried to poke her like a pinata, but she didn’t burst,” Swonk said.
Bernanke sometimes faced a hostile atmosphere in Congress, especially among Republicans who viewed the Fed’s actions as too aggressive and as measures that risked runaway inflation. But inflation has consistently run well below the Fed’s 2% target.
If anything, Yellen has been an even stronger advocate than Bernanke for unconventional Fed efforts to boost growth and lower unemployment. She repeatedly said Tuesday that she was committed to the Fed’s dual mandate of maximizing employment and keeping inflation in check.
Yellen noted that the recovery in the job market is “far from complete.” She mentioned the large number of long-term unemployed and the many millions who are working part time but want full-time jobs. Those are elements that are not captured very well in the nation’s unemployment rate, which has dropped fairly rapidly in recent months to stand at 6.6% in January.
Even so, Yellen suggested that she and her colleagues on the Fed committee would have to see things getting considerably worse before they changed course on monetary policy.
“She still seems pretty comfortable with the committee’s basic outlook,” said Alan Levenson, chief economist at mutual fund giant T. Rowe Price in Baltimore. “She was copilot with Bernanke in putting the strategy together. Tactically, there’s not any change.”
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