WASHINGTON — The relationship between Congress and the Federal Reserve took a turn for the worse on Wednesday.
During a testy three-hour hearing, Republicans on the House Financial Services Committee accused Janet L. Yellen, chairwoman of the Fed, of using her office to advance liberal policy goals and argued that Congress should increase its oversight of the central bank.
Republicans, who control Congress but not the agencies that interpret and execute legislation, appear frustrated with the course of economic policy.
They want the Fed to move more quickly toward raising interest rates and to ease some of the restrictions that a Congress controlled by Democrats imposed on the financial industry after its 2008 collapse.
“Fed reforms are needed, and I, for one, believe Fed reforms are coming,” said Representative Jeb Hensarling, the Texas Republican who is chairman of the committee.Ms. Yellen pushed back forcefully, sometimes speaking over her questioners to make a point.
She defended her actions and the conduct of monetary policy, and she warned against constraining the Fed’s independence. Appearing before Congress for a second consecutive day, Ms. Yellen offered no new insights into the likely course of monetary policy, and the committee members made little effort to elicit any.
The hearing instead was devoted to questions about financial regulation and to questions about the proper relationship between the central bank and the rest of the federal government.
Republicans expressed particular anger about a speech on rising economic inequality that Ms. Yellen delivered in October, a few weeks before the midterm elections, in which she questioned “whether this trend is compatible with values rooted in our nation’s history.”
Representative Mick Mulvaney, a South Carolina Republican, criticized Ms. Yellen for speaking about “issues outside your jurisdiction,” which he said undermined the Fed’s political independence. “You’re sticking your nose in places that you have no business to be,” Mr. Mulvaney said.
Ms. Yellen, visibly unsettled, responded that she considered the issue important, that all of her predecessors as Fed chairman had from time to time used that pulpit to address broader economic issues, and that “I feel that I am entitled to do the same.”
Representative Sean Duffy, a Wisconsin Republican, said the speech showed political bias because Democrats were campaigning on the issue at the time. “I am not making political statements,” Ms. Yellen responded.
“I am discussing a significant problem that faces America.”
When Mr. Duffy, his voice rising, said that Ms. Yellen in the speech had appeared to advocate the kinds of policy solutions generally favored by Democrats, Ms. Yellen snapped, “I didn’t offer any policy recommendations whatsoever in that speech.” Republicans also criticized Ms. Yellen for what they described as frequent meetings with Obama administration officials.
The tone of the hearing was set by a sharp exchange in the opening moments between Ms. Yellen and Mr. Hensarling.
Mr. Hensarling backs legislation requiring the Fed to announce a set of rules it would follow in setting its benchmark short-term interest rate. Such an approach would have limited the stimulus campaign the Fed has undertaken since the latest recession.
He quoted a snippet of Ms. Yellen’s remarks at a 1995 Fed meeting at which she praised rules that specify how the central bank should balance the sometimes divergent priorities of moderate inflation and minimal unemployment.
That, he quoted her as saying, “is what sensible central banks do.” He then asked Ms. Yellen, “Do you no longer believe that a rules-based policy like the Taylor Rule is what sensible central banks do?”
The rule is a formula written by the Stanford economist John Taylor that specifies interest rates based on inflation and the gap between actual and potential economic output. But the context of that 1995 quote is important.
Ms. Yellen was then pushing the Fed to pay more attention to job growth, and she was expressing a preference for rules that considered both unemployment and inflation, as opposed to rules focused solely on the pace of inflation.
That, she said at the time, “is an example of the type of hybrid rule that would be preferable in my view, if we wanted a rule.” She continued, “I think the Greenspan Fed has done very well by following such a rule, and I think that is what sensible central banks do.”
The Yellen Fed regards job growth as its priority, a transformation so complete that hewing to a Taylor-style rule actually would curb the central bank’s stimulus campaign.
Ms. Yellen has said in other forums that she sees rules as useful reference tools but that policy should be shaped by circumstances. On Wednesday, pressed by Mr. Hensarling, she responded more simply and sharply.
“I don’t believe that the Fed should chain itself to any mechanical rule,” she said. “I did not believe that in 1995. I do not believe it now.”
Democrats argue that Mr. Hensarling’s proposal is an attempt by Congress to meddle in monetary policy. “I think it’s important to have transparency but not at the expense of the independence of the Fed,” said Representative Al Green, a Texas Democrat.
Representative Scott Garrett, a New Jersey Republican, said in turn that Congress had intended to shield the Fed from political pressure “to juice the economy,” while in the current situation, Republicans were seeking to curb its stimulus campaign.
Like Ms. Yellen, he suggested that circumstances had changed and that the rules needed to change, too.
nytimes.com
During a testy three-hour hearing, Republicans on the House Financial Services Committee accused Janet L. Yellen, chairwoman of the Fed, of using her office to advance liberal policy goals and argued that Congress should increase its oversight of the central bank.
Republicans, who control Congress but not the agencies that interpret and execute legislation, appear frustrated with the course of economic policy.
They want the Fed to move more quickly toward raising interest rates and to ease some of the restrictions that a Congress controlled by Democrats imposed on the financial industry after its 2008 collapse.
“Fed reforms are needed, and I, for one, believe Fed reforms are coming,” said Representative Jeb Hensarling, the Texas Republican who is chairman of the committee.Ms. Yellen pushed back forcefully, sometimes speaking over her questioners to make a point.
She defended her actions and the conduct of monetary policy, and she warned against constraining the Fed’s independence. Appearing before Congress for a second consecutive day, Ms. Yellen offered no new insights into the likely course of monetary policy, and the committee members made little effort to elicit any.
The hearing instead was devoted to questions about financial regulation and to questions about the proper relationship between the central bank and the rest of the federal government.
Republicans expressed particular anger about a speech on rising economic inequality that Ms. Yellen delivered in October, a few weeks before the midterm elections, in which she questioned “whether this trend is compatible with values rooted in our nation’s history.”
Representative Mick Mulvaney, a South Carolina Republican, criticized Ms. Yellen for speaking about “issues outside your jurisdiction,” which he said undermined the Fed’s political independence. “You’re sticking your nose in places that you have no business to be,” Mr. Mulvaney said.
Ms. Yellen, visibly unsettled, responded that she considered the issue important, that all of her predecessors as Fed chairman had from time to time used that pulpit to address broader economic issues, and that “I feel that I am entitled to do the same.”
Representative Sean Duffy, a Wisconsin Republican, said the speech showed political bias because Democrats were campaigning on the issue at the time. “I am not making political statements,” Ms. Yellen responded.
“I am discussing a significant problem that faces America.”
When Mr. Duffy, his voice rising, said that Ms. Yellen in the speech had appeared to advocate the kinds of policy solutions generally favored by Democrats, Ms. Yellen snapped, “I didn’t offer any policy recommendations whatsoever in that speech.” Republicans also criticized Ms. Yellen for what they described as frequent meetings with Obama administration officials.
The tone of the hearing was set by a sharp exchange in the opening moments between Ms. Yellen and Mr. Hensarling.
Mr. Hensarling backs legislation requiring the Fed to announce a set of rules it would follow in setting its benchmark short-term interest rate. Such an approach would have limited the stimulus campaign the Fed has undertaken since the latest recession.
He quoted a snippet of Ms. Yellen’s remarks at a 1995 Fed meeting at which she praised rules that specify how the central bank should balance the sometimes divergent priorities of moderate inflation and minimal unemployment.
That, he quoted her as saying, “is what sensible central banks do.” He then asked Ms. Yellen, “Do you no longer believe that a rules-based policy like the Taylor Rule is what sensible central banks do?”
The rule is a formula written by the Stanford economist John Taylor that specifies interest rates based on inflation and the gap between actual and potential economic output. But the context of that 1995 quote is important.
Ms. Yellen was then pushing the Fed to pay more attention to job growth, and she was expressing a preference for rules that considered both unemployment and inflation, as opposed to rules focused solely on the pace of inflation.
That, she said at the time, “is an example of the type of hybrid rule that would be preferable in my view, if we wanted a rule.” She continued, “I think the Greenspan Fed has done very well by following such a rule, and I think that is what sensible central banks do.”
The Yellen Fed regards job growth as its priority, a transformation so complete that hewing to a Taylor-style rule actually would curb the central bank’s stimulus campaign.
Ms. Yellen has said in other forums that she sees rules as useful reference tools but that policy should be shaped by circumstances. On Wednesday, pressed by Mr. Hensarling, she responded more simply and sharply.
“I don’t believe that the Fed should chain itself to any mechanical rule,” she said. “I did not believe that in 1995. I do not believe it now.”
Democrats argue that Mr. Hensarling’s proposal is an attempt by Congress to meddle in monetary policy. “I think it’s important to have transparency but not at the expense of the independence of the Fed,” said Representative Al Green, a Texas Democrat.
Representative Scott Garrett, a New Jersey Republican, said in turn that Congress had intended to shield the Fed from political pressure “to juice the economy,” while in the current situation, Republicans were seeking to curb its stimulus campaign.
Like Ms. Yellen, he suggested that circumstances had changed and that the rules needed to change, too.
nytimes.com
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