USA TODAY International Edition
Yellen still stumps for stimulus
Fed chief nominee gives no hint on taper
Federal Reserve Chair nominee Janet Yellen told senators Thursday that the Fed’s stimulus measures continue to boost the recovery despite their growing risks, and she gave no clue when policymakers will begin to scale back the program.
“The ( Fed’s bond) purchases have made a meaningful contribution to economic growth,” said Yellen during a Senate banking committee hearing on her nomination to lead the Fed.
If confirmed by the full Senate, as expected, she would succeed Fed Chairman Ben Bernanke next year and become the first woman to head a major central bank. Yellen, who is now the Fed’s vice chair, largely echoed Bernanke’s pro- growth approach, signaling to economists a continuity of Fed policies.
Yellen, 67, held her ground amid sharp questioning from committee Republicans who argued the risks and costs of the Fed’s $ 85 billion in monthly bond purchases have grown, while benefits to the economy have diminished. The purchases are intended to hold down long- term inter- est rates and spur economic growth.
She said “it’s important” that the Fed not taper down its bond buying too soon, “especially when the recovery is still fragile.”
At the same time, Yellen acknowledged the risks of the bond- buying, which include eventual high inflation. She said she’s particularly concerned about the potential formation of asset bubbles, noting that she doesn’t view the record- high stock market as such a bubble. “These are risks we take very seriously,” she said.
But she added, “At this point, I believe the benefits ( of the stimulus) exceed the costs.”
Several Republicans argued otherwise. Mike Crapo, R- Idaho, the committee’s ranking member, pressed Yellen on on when the Fed will begin to rein in the bond- buying. “How long is too long?” he asked
She would not be specific but said that “what the committee is looking for is signs that we will have growth” that will be sustained.
Some economists expect the Fed to begin paring back the program as early as December after a recent government report revealed surprisingly strong job gains of 204,000 in October despite the government shutdown. Many other economists expect the tapering to start in March.
Several Republicans say the Fed’s stimulus has pumped up the value of assets such as real estate and stocks. “I’m just worried we’re on a sugar high,” said Crapo.
Sen. Bob Corker, R- Tenn., bluntly called the Fed’s low interest- rate program “an elitist policy” that’s helping wealthier Americans who own stocks, but “it hasn’t trickled down” to those that rely on now- meager bank interest rates for income.
Yellen partly agreed but said Fed policies have helped heal the housing market, benefiting all homeowners. “The ripple effects go through the economy,” she said.