Yellen and House Republicans clash over Fed’s performance
WASHINGTON — Janet Yellen, the Federal Reserve chairwoman, sparred with House Republicans on Wednesday about the value of financial regulation and the effectiveness of monetary policy in a testy session that showed the gulf between the central bank and the conservatives who control Capitol Hill on the state of the economy.
During a hearing before the House Financial Services Committee, Republicans pressed Yellen relentlessly to concede that the American economy is broken, that the Fed has failed to fix the underlying problems, and that excessive regulation is making things worse.
Members of the committee frequently interrupted Yellen, who tends to speak slowly and at length, and showed frustration when she did not concede their points.
For the most part, she did not. Yellen acknowledged that economic growth has been “quite disappointing,” but she said the Fed’s efforts had contributed to strong job growth since the financial crisis, and she defended the value of the changes in regulation that followed it.
The hearing was contentious from the outset. Rep. Jeb Hensarling, R-Dallas, the committee chairman, began with an indictment of what he described as the Fed’s failures.
“After eight years of the largest monetary policy stimulus in our history and the most unconventional monetary policy in our history, Americans recently received disappointing economic news yet again,” he said. “It is official: The economy grew at a measly 1.6 percent in 2016, when our historic norm is twice that.”
Hensarling also criticized “a failed regulatory state” that, he said, is impeding growth.
Yellen sought to strike a cooperative tone in her responses. She emphasized the Fed’s willingness to work with the Trump administration. She pledged to meet with the new Treasury secretary, Steven Mnuchin, just as often as she met with his predecessor, Jacob Lew. She said she agreed with the basic principles in President Donald Trump’s recent executive order calling for federal agencies to evaluate the efficacy of regulation.
The Fed also has its own doubts about some of the post-crisis changes in financial regulation, like the so-called Volcker Rule, which limits the kinds of investments financial institutions can make. Banks regard the rule as an arbitrary restraint, and Republicans would like to erase it. The Fed did not back its creation, and Yellen stopped short of rising to its defense.
“I think the evidence on this matter is conflicting,” she said of its impact.
On Tuesday, in testimony before the Senate Banking Committee, Yellen said she also favored some reduction in the regulatory burden imposed upon smaller banks. She reiterated that view Wednesday.
“I think we should be heavily focused on using every tool available to us to reduce regulatory burden on those banks,” she said.
But Yellen did not endorse a broader rollback of regulation of big banks.
“I think financial regulation has resulted in a stronger financial system and less risk than we had before the crisis,” Yellen said.
“It’s allowed us to have stronger growth and a faster recovery.”
Republicans also pressed Yellen repeatedly to suspend rule writing until the Trump administration can appoint a new vice chairman for regulation.
Rep. Andy Barr, R-Ky., the new chairman of the monetary policy subcommittee, told Yellen it was “imperative” for the Fed to refrain from issuing new regulations until Trump has a chance to place his own people at the central bank.