Janet Yellen, the newly appointed Chair to the Federal Reserve, and the first female to hold the position, offers comments today to House Financial Services Committee and then later this week to the Senate Banking Committee, in a report made twice a year to Congress.
The Chair’s statements are watched closely all year by Wall Street and Washington, but these will be particularly important in setting a tone for her agenda as leader of the Federal Reserve during her four-year appointment, which officially started on first of this month.
Yellen has established a record of level handedness during her 12 years of crafting policy. For example, although she holds the view that higher inflation rates than would otherwise be optimal can be permitted to dampen unemployment, she has yet to dissent on any interest rate hikes mandated by the Federal Reserve.
Many will be paying attention to any change in the sentiment of statements made during her nomination process regarding the direction she intends to lead the monetary policy body and her statements to be made this week.
In hearings conducted during Yellen’s nomination process, two senators, David Vitter (R-LA) and Sherrod Brown (D-OH), called for action to address the issue of large Wall Street banks having access to very low borrowing costs, implying that much of the bank’s perceived economic success depends excessively on funding from tax payers. Yellen commented that some subsidies may point to too-big-to-fail and improved regulation of these banks would be an important goal in what she called the “post-crisis period.”
Elizabeth Warren (D-MA) pushed for the Federal Reserve to be generally more aggressive and better organized in their Wall Street policing methods. Yellen responded “I absolutely believe that our supervisory abilities are critical, and they’re just as important as monetary policy.”
These are not the only important questions likely to be addressed by the first female to chair the Federal Reserve in its 100-year history as she makes her comments today. Investors and analysts have produced a likely short list of themes on which Yellen is expected to offer guidance.
Top among these is the general economic outlook. Recovery after the Great Recession has been sluggish for most of the population and with unemployment hovering around 6.5 percent there are many waiting for an optimistic tenor.
Growth in the U.S. labor market is certainly one of the concerns members of Congress will want to hear Yellen’s thoughts about, as well as her views on short term interest rate in relation to the unemployment rate.
Comments on “the taper,” the slow reduction in the purchase of bonds to provide quantitative easing, will be scrutinized for any signs of a change in tempo and assurance that the reduction remains linked to the job market and general economy.
Also expected is a description of her proposals to deflate any asset bubbles, like the recent one in real estate which most see as the root cause of the strong economic downturn of 2008, without destabilizing financial markets or putting more downward pressure on already struggling small businesses and families.
Yellen, among just a handful of top female central bankers globally, has a full plate coming into her first week as Chair of the Federal Reserve, but she is not a newcomer to these challenges having served as a vice chair of the Federal Reserve since October of 2012.
By Brian Ryer