House Republicans Grill Yellen On Fed Transparency, Liberal Ties

Samantha SharfForbes Staff
In her second day in a row of Capitol Hill testimony Federal Reserve Chair Janet Yellen participated in a hearing titled: “Monetary Policy and the State of the Economy.” Wednesday she was again welcomed by suspicious hosts who offered more statements about Fed oversight and bias than questions about monetary policy or the state of the economy.

The Welcome

House Financial Services Committee Chair Jeb Hensarling, a republican from Texas, kicked off Wednesday’s hearing by sharing significant doubts about the strength of the economic recovery and the effectiveness of monetary policy as well as his belief that the Fed lacks transparency and accountability. “Fed reform is coming,” he told Yellen.

Another republican Bill Huizenga described the Fed as “shrouded in mystery for the American people” despite exerting substantial control over financial markets. He wants the Fed to “lift the veil of secrecy” and for Yellen to stop by the Hill for more hearings. (Currently the Fed chair is required to appear before both houses of Congress twice annually. Huizenga would like that to happen four times a year.)

On the other side of the aisle, ranking member Maxine Waters, a democrat from California, was more positive. She complemented Yellen on her role in improving economic conditions but pointing out that low, middle income and in particular black families continue to struggle. Al Green, a Democrat from Texas, responded to the Republican calls for more Fed oversight by saying, “We have to balance the transparency of the Fed with the independence of the Fed.” Rhetorically asking, “Do we want the same Congress who can’t fund homeland security to have control over Fed funding?”

The Statement

In her prepared remarks delivered before the Senate Committee on Banking, Housing and Urban Affairs Tuesday and then the House Committee on Wednesday, Yellen sought to provide clarity on the course of actions the central bank will take as it moves toward raising interest rates from near zero to a more historically normal range. The Fed is taking great care in this process which it hasn’t gone through in a decade.

Since December the Fed has used the word “patient” to indicate how long it anticipates maintaining current rates. Yellen had previously defined this as “a couple” meetings and agreed “a couple” is synonymous with two.

She added,

The Q&A

Yellen was pushed into defense mode for much of Wednesday’s meeting which lasted close to three hours and included few questions about monetary policy.

Hensarling kicked off the Q&A by showing his support for a House proposal to require the Fed to use a formula – such as the Taylor Rule — when forming monetary policy. Yellen told him exactly what she told the Senate a day earlier: She does not believe the Fed should be “chained” to any one policy rule. Elaborating that she views the Taylor rule as a useful benchmark and not the end-all-be-all.

A few congresspeople later Huizenga picked up where Hensarling left off, arguing that the House is not saying the Fed can’t change the rule but saying they want more transparency and that a rule could help provide that. He then turned to one of the dominant themes of the session: concerns about executive branch — aka Democratic — influence on the Fed.

Referencing a Wall Street Journal study of Yellen’s schedule he pointed out that she met with the White House 51 times last year — which would include her close to weekly meetings with Treasury Secretary Jack Lew — but met just 23 times with “lawmakers” which would include members of Congress. “I do not discuss monetary policy or actions with the secretary or executive branch,” responded Yellen, pointing out that the Fed and Treasury have shared interest in the economy and are often present at the same international meetings. She later said that she has never turned down a meeting with a member of Congress.

Another major touch point of the hearing was Yellen’s October 2014 speech on income inequality. Democrats complimented her on shedding light on an issue impacting their constituents while Republicans argued she was pushing a liberal agenda suspiciously close to midterm elections. For her part Yellen said her speech was not politically motivated and that she sees income inequality as an economic fact that Americans have been increasingly facing since the 1980s.

The modification should be understood as reflecting the Committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting. Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective.”

In identical remarks delivered both days she said this language will be removed before a rate hike occurs but discouraged taking this linguistic move, when it comes, as a guarantee the Fed will raise rates in two meetings. Instead she urges seeing it as a signal the Federal Open Markets Committee is ”considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.”