Washington (AFP) – Janet Yellen, the nominee to lead the Federal Reserve, said Wednesday that U.S. unemployment at 7.3 percent remains too high and reflects an economy running “far short”of its potential.
In remarks prepared for a Senate confirmation hearing Thursday, the current Fed vice chair who could become the first woman to run the US central bank signaled her support for continuing its easy-money policies, until the economy grows more robustly.
She also reiterated the stance of Fed policymakers that inflation is still very low and poses no threat to the economy.
“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.”
Yellen also defended outgoing Chairman Ben Bernanke’s response to the economic crisis of 2008, which she said could have been “far worse” without his stewardship.
“Under the wise and skillful leadership of Chairman Bernanke, the Fed helped stabilize the financial system, arrest the steep fall in the economy, and restart growth,” she said.
Yellen’s brief remarks prepared for the Senate Banking Committee, which must sign off on her nomination before the entire Senate votes on it, put her squarely in line with the central bank’s current expansive monetary policy.
The economist will have to defend that to a number of Republicans on the panel who argue that its $85 billion a month asset-buying operation is piling up future risks and liabilities.
But Yellen, proposed by President Barack Obama to succeed Bernanke, is expected to be approved by the committee, given its dominance by Democrats.
In her remarks she reiterated the Congress-defined mission of the Fed of “promoting conditions that foster maximum employment, low and stable inflation, and a safe and sound financial system.”
But with inflation still well below the 2 percent level the Fed believes would be healthy, she highlighted the problem of the jobs market, an issue which Bernanke has kept the Fed focused on.
“We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession,” she said. “Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential.”
With one prominent Republican senator who is not on the panel, Rand Paul, demanding an open audit of the Fed, Yellen said in her remarks that she is firmly in support of more transparency at the central bank.
“Like the chairman, I strongly believe that monetary policy is most effective when the public understands what the Fed is trying to do and how it plans to do it,” Yellen said. “I have strongly supported this commitment to openness and transparency, and will continue to do so if I am confirmed and serve as chair.”
She also said she supported ongoing efforts to strengthen regulation of financial institutions, using better supervision and tougher capital and liquidity rules to deal with banks and others regarded as “too big to fail.”
Committee head Senator Tim Johnson said in his own statement for the hearing, also released Wednesday, that Yellen “has proven through her extensive and impressive record in public service and academia that she is most qualified to be the next chair of the Federal Reserve.”
Republican committee member Bob Corker, who has been a Yellen critic, said he expects her to be voted through.
“I’ve predicted from day one that I think she will be,” he told reporters Wednesday.
But Rand Paul and another Republican senator have separately threatened to try to block her nomination when it comes to the full Senate, unless they can get backing for their own agendas.
Most expect those blocking maneuvers to fail.
If approved, she will replace Bernanke on February 1.