The questions and interchanges at Fed Vice Chair Janet Yellen’s confirmation hearing for the top job before the Senate Banking Committee last Thursday were refreshingly civil, and many senators of both parties, near the end of the hearing, communicated their support for her confirmation.
Yellen was impeccably prepared. She consistently responded to questioners that there is no consistent economic study model that would provide a yardstick for Fed policy – it was and will be the Fed’s job to watch market behavior and strike a balance between measures that support growth and that moderate volatility to determine the right time to begin to taper. She showed great patience with questioning which increasingly sounds like “are we there yet?”
Sen. Robert Corker (R-Tenn.), who formerly voted against Yellen’s confirmation as vice chair, asked if the Fed is a prisoner of the markets in establishing policy. Yellen responded that the Fed can’t and shouldn’t be a prisoner of the markets, but markets impact the economy, so the Fed must watch them.
The Senate Banking Committee seemed to be looking for a gold standard in terms of economic study models that would, though they didn’t use that term, and when Sen. Dean Heller (R-Nev.) raised the subject of gold prices, Yellen responded that gold prices rise when investors flee into them as a result of fear.
She managed to acknowledge conservative concerns about risks of Fed policy without conceding her own stance. She downplayed concerns about a stock-market bubble as investors, including the ever-vulnerable mom and pop, get back into the market seeking higher yields, but acknowledged the toll that low interest rates have taken on retirees, other savers, and pension funds.
In answer to Sen. Mike Johanns’ (R-Neb.) concern on asset bubbles, such as investors paying cash up front for foreclosed homes in hard-hit markets, she termed it as a ‘logical response’ by the market, not an asset bubble. Johanns didn’t let up; he cautioned that the Fed’s policies have created a ‘sugar’ on which the economy has become dependent – and that the low interest rate environment hurts people trying to pay their bills and save for retirement.
Sen. Elizabeth Warren (D-Mass.) said that if the Fed and other regulators had addressed the big-bank crisis in 2008, the worst of the downstream problems could have been averted. Yellen replied that while the Fed must take bank supervision seriously, the board faces restraints that require discussion of regulation in open meetings of the board, so Fed officials meet with staff on the issues, and that a top priority is to ramp up monitoring of the financial system to detect risks.
One last note: Sen. Robert Corker was the first of several senators to remark that her answers in public matched her answers in private during a previous visit to his office before the hearing. The only thing about this that we find regrettable is that consistency in public and private forums is seen as the exception rather than the rule.
