Janet Yellen defends Fed stimulus efforts at confirmation hearing
WASHINGTON -- Federal Reserve chair nominee Janet L. Yellen strongly defended the central bank’s stimulus efforts under questioning at her Senate confirmation hearing Thursday, saying the controversial bond-buying program has helped the economy recover.
She offered no new hints of when the Fed would start reducing its purchases but indicated that, if confirmed, she was prepared to continue to aggressively use monetary policy to boost growth.
“These purchases have made a meaningful contribution to economic growth and improving the outlook” Yellen told the Senate Banking Committee.
President Obama has nominated Yellen, the Fed’s vice chair and a former UC Berkeley economist, to succeed Ben S. Bernanke when his term as chairman ends Jan. 31.
The Fed’s monthly purchase of $85 billion in Treasury securities, which began in September 2012, was designed to stimulate the economy by lowering longer term interest rates. Yellen said the effort, the third round of so-called quantitative easing, was helping improve economic growth.
In her opening statement, Yellen said the economy still had not fully recovered and needed the Fed’s continued support.
“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” she said. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
Under questioning from Sen. Mike Crapo (R-Idaho), a critic of the Fed’s bond-buying, Yellen said the program helped reduce unemployment and contributed to the housing market rebound by pushing down mortgage rates.
“Lower interest rates, lower mortgage rates in particular ... have been a positive factor in generating the recovery in the housing sector,” said Yellen, who has been a close ally of Bernanke since she became vice chair in 2010.
Yellen admitted that the program, which has more than quadrupled the assets on the Fed’s balance sheet since 2008 to nearly $4 trillion, cannot go on indefinitely.
But she gave no indication when she and other members of the policymaking Federal Open Market Committee would start tapering the size of the monthly purchases. The Fed surprised investors by not starting to cut back the purchases in September, and some analysts don’t expect a change until early next year.
“We have seen meaningful progress in the labor market and what the committee is looking for is signs that we will have growth strong enough to continue the progress,” Yellen said.
Because short-term interest rates are near zero and the Fed is nearly out of tools to stimulate the economy, Yellen said it was important not to remove the stimulus too early.
“It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy should the economy falter are limited,” she said.
Many Republicans have criticized the bond-buying as risking runaway inflation. The Fed has a dual mandate to maximize employment and keep inflation in check.
Yellen is viewed as willing to tolerate higher inflation in order to reduce unemployment. But she was careful Thursday to note that she was watching inflation, which so far has been running below the Fed’s long-term target of 2% annually.
“The message that we want to send is that we will do what is in our power to assure a robust recovery in the context of price stability,” Yellen said.
But Yellen also said she was committed to helping average Americans, a position that has drawn her strong liberal backing.
“The effect of our policy is broadly to benefit all Americans, especially those who are seeing harm come to them and their families by high unemployment in a recovery that’s taken a long time and been frankly disappointing,” Yellen said.
With strong Democratic support, Yellen is expected to be confirmed as the first woman to head the Fed. But Sen. Rand Paul (R-Ky.) said he would delay a confirmation vote by the full Senate unless he gets a vote on his legislation to allow for more expansive audits of the Fed.
The so-called Audit the Fed bill would allow the Government Accountability Office to audit the central bank’s monetary policy actions and decision-making. Yellen said she was committed to improving the Fed’s transparency but opposed the legislation.
“Allowing a central bank to be independent in formulating monetary policy is critical to assuring markets and the public that we will achieve price stability,” Yellen told Sen. David Vitter (R-La.), a cosponsor of the legislation.
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