Janet Yellen took her first step toward replacing Ben Bernanke as Federal Reserve chairman on Thursday, when she faced the Senate Banking Committee’s array of questions regarding wealth inequality, bank regulation, and general monetary policy.
In her opening statements, Yellen told the committee that the economy still had not fully recovered — something she has been adamant about in the past. She also said that a full recovery would require the Fed’s support.
“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen explained. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
That return to more “normal” monetary policy dominated the hearing. Republicans and Democrats alike questioned whether the Fed’s current monetary policies, which are meant to stimulate growth and eventually lower inflation, are only perpetuating wealth inequality.
“It’s not clear to me and it’s not clear to many Americans that have not seen a raise in many years that this policy raises incomes and wages on Main Street,” said Senator Sherrod Brown (D-OH).
Yellen – who, as vice chair of the Fed since 2010, has worked closely with Bernanke in creating the policies in question – responded that the policies’ “ripple effects go through the economy and bring benefits to…all Americans.” She did acknowledge, though, that the widening gap between the rich and poor was a long-term trend that the Fed could not entirely control nor resolve.
Republicans argue that the policies advocated by Yellen hurt the economy. Senator Rand Paul (R-KY) – who has complained that the Fed is “printing money out of thin air” — has vowed to hold up Yellen’s confirmation until the Senate votes on his “Audit the Fed” bill, which would allow the Government Accountability Office to audit the Fed’s monetary policy actions. The bill’s purpose is supposedly to ensure Americans “know what this institution is doing with the nation’s money supply.”
Paul is not actually a member of the Senate Banking Committee, but fellow GOP senator David Vitter (LA) referenced his bill when he asked Yellen about the “true openness and transparency” of the Fed.
“We’re one of the most transparent central banks in the world,” Yellen answered.
But she added that adopting Paul’s bill would “diminish” the bank’s independence by subjecting it to “short-term political pressures.”
Even so, Republicans argued that the monetary policy criticized by Paul risks runaway inflation and completely ignores the Fed’s responsibility to keep inflation in check. They voiced concerns that there was no end in sight for the Fed’s stimulus, and pointed to the dangers of bond-buying – a large portion of the Fed’s stimulus.
Yellen admitted that she, too, is concerned about the $85 billion-a-month bond-buying program, which recently caused asset bubbles — the sharp and constant rise of asset prices that then suddenly collapse — in junk bonds and stocks of real estate investment trusts. She did, however, attribute “reduced unemployment,” “lower interest rates,” and “lower mortgage rates” to the program, and said it was too early to end the program.
Because much of the hearing focused on the Fed’s current monetary policies, the Fed’s vice chair did not say much about the bank’s short-term plans. She, did, however, emphasize the Fed’s “supervisory responsibilities” over banks in response to Senator Elizabeth Warren’s (D-MA) strong criticism of its regulatory failings prior to the economic crisis.
Yellen, who has often said more must be done to combat the nation’s unemployment rates, said the issue is among her top priorities.
“I consider it imperative that we do what we can to promote a very strong recovery,” the nominee said.
If the Senate votes to confirm Yellen — as many predict it will — she will be the first woman to head the Federal Reserve, considered one of the most powerful — if not the most powerful — institutions in the world.
AFP Photo/Saul Loeb