Yellen to call for no change in Fed pol­icy

To sup­port bond, se­cu­ri­ties pur­chases in her con­fir­ma­tion tes­ti­mony

The Washington Times Daily - - Business - BY PA­TRICE HILL

Janet Yellen, Pres­i­dent Obama’s pick to be the next head of the Fed­eral Re­serve, is vow­ing to main­tain the cen­tral bank’s ul­tra-easy poli­cies on in­ter­est rates un­til she sees more con­vinc­ing growth in the econ­omy and job mar­ket, in pre­pared tes­ti­mony to be de­liv­ered at her Se­nate con­fir­ma­tion hear­ing Thurs­day.

“Our coun­try has come a long way since the dark days of the fi­nan­cial cri­sis, but we have far­ther to go,” Ms. Yellen, cur­rently the Fed’s vice chair­woman, said in a short pre­pared state­ment re­leased late Wednes­day ahead of the Se­nate Bank­ing Com­mit­tee hear­ing, where she is sure to en­counter praise from Democrats but crit­i­cism from con­ser­va­tives over the Fed’s loose-money poli­cies.

Ms. Yellen, who would suc­ceed de­part­ing Fed Chair­man Ben S. Ber­nanke if con­firmed, made no apol­ogy for the Fed’s un­prece­dented ef­forts in the past year to try to lower long-term in­ter­est rates on mort­gages and other loans through $85 bil­lion a month pur­chases of U.S. Trea­sury bonds and mortgage se­cu­ri­ties, and sig­naled she will present a vig­or­ous de­fense of those poli­cies at the com­mit­tee con­fir­ma­tion hear­ing.

“I be­lieve that sup­port­ing the re­cov­ery to­day is the surest path to re­turn­ing to a more nor­mal ap­proach to mone­tary pol­icy,” she will say, ac­cord­ing to the tes­ti­mony. “The Fed­eral Re­serve is us­ing its mone­tary pol­icy tools to pro­mote a more ro­bust re­cov­ery. A strong re­cov­ery will ul­ti­mately enable the Fed to re­duce its mone­tary ac­com­mo­da­tion and re­liance on un­con­ven­tional pol­icy tools such as as­set pur­chases.”

Ms. Yellen, an em­i­nent la­bor econ­o­mist with ex­ten­sive ex­pe­ri­ence work­ing at the Fed, the White House and in academia, said she will be closely watch­ing the job mar­ket for signs of im­prove­ment in de­cid­ing what poli­cies to rec­om­mend to other mem­bers of the Fed’s rate­set­ting com­mit­tee, which meets ev­ery six weeks to con­sider whether to change course or stand fast in steer­ing in­ter­est rates.

She noted that the U.S. pri­vate sec­tor al­ready has cre­ated 7.8 mil­lion new jobs since the Great Re­ces­sion, though that is still not enough to re­place the more than 8 mil­lion jobs lost dur­ing the global down­turn.

“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.”

For Repub­li­can leg­is­la­tors who are con­cerned about the pos­si­bil­ity of high in­fla­tion aris­ing from the Fed’s stim­u­la­tive poli­cies, Ms. Yellen em­pha­sized that in­fla­tion has re­mained un­der the Fed’s 2 per­cent an­nual goal de­spite the easy­money poli­cies, and is ex­pected to stay there for some time to come.

Ms. Yellen paid tribute to Mr. Ber­nanke, cred­it­ing him with pre­vent­ing the re­ces­sion from turn­ing into a far worse eco­nomic down­turn akin to the Great De­pres­sion by mov­ing de­ci­sively in 2008 and 2009 to con­tain the fi­nan­cial cri­sis, of­ten in the face of sharp crit­i­cism and op­po­si­tion from mem­bers of Congress and the pub­lic.

“The ef­fects were se­vere, but they could have been far worse,” she said, not­ing that still-con­tro­ver­sial moves by Mr. Ber­nanke to res­cue the founder­ing Amer­i­can In­ter­na­tional Group and pro­vide emer­gency loans to liq­uid­ity-strapped U.S. and for­eign banks “helped sta­bi­lize the fi­nan­cial sys­tem, ar­rest the steep fall in the econ­omy and restart growth.”

Ms. Yellen added that she will con­tinue Mr. Ber­nanke’s poli­cies of mak­ing the Fed more open and trans­par­ent to the pub­lic, poli­cies that she helped to forge as his lieu­tenant for many years. Mr. Ber­nanke was the first Fed chair­man to hold reg­u­lar press con­fer­ences and in­ter­views with the me­dia, among other un­prece­dented steps he took to open up the Fed dur­ing an eight-year ten­ure that is due to end on Jan. 30.


Janet Yellen, Pres­i­dent Obama’s choice to suc­ceed Ben S. Ber­nanke as head of the Fed­eral Re­serve, heads to Capi­tol Hill on Thurs­day for her con­fir­ma­tion hear­ing in front of the Se­nate Bank­ing Com­mit­tee. Ms. Yellen, a la­bor econ­o­mist, is the cur­rent vice chair­woman at the Fed.

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