USA TODAY International Edition
5 THINGS TO WATCH FOR AT YELLEN’S HEARING
It’ll be a reality TV show Wall Street won’t want to miss
Janet Yellen will step into the unforgiving glare of one of the world’s most important jobs today at the Senate’s confirmation hearing on her nomination to succeed Federal Reserve Chairman Ben Bernanke.
She’s expected to later win confirmation from the Democratic- controlled Senate, making her the first woman to lead a major central bank. Her performance could set the tone for a new era at the Fed that places an even greater premium on effective communication.
Yellen, 67, has been the Fed’s vice chair since 2010. Between her first stint on the Fed in the 1990s and her current one, Yellen was president of the San Francisco Federal Reserve Bank and chaired the White House Council of Economic Advisers.
Today’s hearing before the Senate banking committee starts at 10 a. m. Here are five things to watch for:
1 Can she handle a national stage? A Fed chairman’s words move global markets. Yellen has been a leading advocate for the Fed’s recent efforts to communicate more clearly to the public. She’s known as a meticulous preparer, crafting written remarks for meetings where colleagues speak off the cuff. How will she perform under fire?
“She doesn’t do an awful lot of this stuff,” says economist Paul Ashworth of Capital Economics. “You want somebody at the Fed who can think on their feet … and not get flustered.”
Barclays Capital economist Michael Gapen, a former high- level Fed staffer, predicts Yellen will be ready. “I would be really surprised if they can come up with a question that she won’t have an answer for,” he says.
2 Will she sound like Greenspan or Bernanke? In congressional testimony, legendary Fed chief Alan Greenspan was “deliberately cryptic,” while Bernanke, the former Princeton professor, “wanted to explain things to people” simply, Ashworth says. Yellen, a Berkeley economics professor emeritus, is likely to resemble Bernanke, he says.
3 How will Yellen reconcile the Fed’s dual mandate to boost employment while keeping inflation low with her own economic philosophy? Yellen is considered the Fed’s most “dovish” policymaker, meaning she has voiced more concerns about unemployment, now 7.3%, than the hazards of eventual high inflation. But inflation risks down the road have risen with the Fed’s ongoing bond- buying program to hold down interest rates and spur job growth.
Critics, though, say the effects on growth have diminished. Sen. Bob Corker, R- Tenn., says he will ask Yellen to “explain how to wean us off of our reliance on this Fed stimulus without cratering financial markets.”
In her prepared opening remarks, Yellen defends the easy- money policy, noting unemployment “is still too high” while inflation is below the Fed’s 2% annual goal. “I believe that supporting the recovery today is the surest path” back to normal policy.
Vincent Reinhart, chief U. S. econo-
Yellen defends policy, usatoday. com
mist of Morgan Stanley and former head of monetary affairs at the Fed, says Yellen may put slightly more emphasis on her vigilance toward inflation to mollify Republicans. After all, she has backed each Fed interest rate hike during her tenures. “This would be an opportunity to emphasize her pursuit of ... long- run price stability,” he says.
4 Will she drop clues on tapering? Financial markets will scrutinize Yellen’s remarks for any hint of when the Fed will start to taper its $ 85 billion a month in bond purchases. Markets expected it to start in September, but the Fed said no change was warranted amid mixed economic data and Congress’s looming budget battle.
Job growth improved last month, but economists say Yellen will studi- ously dance around such questions, in part because she is not chairman and can’t speak for the Fed’s policymaking committee. “Her goal is not to make any news about the setting of monetary policy,” Reinhart says. Instead, she’ll likely reiterate that Fed decisions will depend on how the economy performs, Gapen says.
5 How will she handle questions about “too big to fail” banks? Senators such as David Vitter, R- La., and Elizabeth Warren, D- Mass., say the Dodd- Frank financial reform act doesn’t go far enough in preventing government bailouts of big teetering banks. Each has introduced bills to address the concern.
In her prepared statement, Yellen says she supports more oversight of “too big to fail” financial institutions without burdening small banks.