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Janet Yellen and House Republicans Clash Over Fed’s Performance Janet Yellen and House Republicans Clash Over Fed’s Performance
(about 2 hours later)
WASHINGTON — Janet L. 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. 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.
During a hearing before the House Financial Services Committee, Republicans pressed Ms. 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. During a hearing before the House Financial Services Committee, Ms. Yellen was relentlessly pressed by Republicans to concede that the American economy was broken, that the Fed had failed to fix the underlying problems and that excessive regulation was making things worse.
Members of the committee frequently interrupted Ms. Yellen, who tends to speak slowly and at length, and showed frustration when she did not concede their points. Members of the committee frequently interrupted Ms. 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.
For the most part, she did not. Ms. 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. Ms. Yellen acknowledged that economic growth had been “quite disappointing,” but she said the Fed’s efforts had contributed to strong job growth since the 2008 financial crisis, and she defended the value of the regulatory changes that came after it.
The hearing was contentious from the outset. Representative Jeb Hensarling, the Texas Republican who is chairman the committee, 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.” “I think financial regulation has resulted in a stronger financial system and less risk than we had before the crisis,” Ms. Yellen said. “It’s allowed us to have stronger growth and a faster recovery.”
Mr. Hensarling also criticized “a failed regulatory state” that, he said, is impeding growth. The hearing was contentious from the outset. Representative Jeb Hensarling, a Texas Republican who is the chairman of the committee, 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.”
Mr. Hensarling also criticized “a failed regulatory state” that he said was impeding growth.
Ms. 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 T. Mnuchin, just as often as she met with his predecessor, Jacob J. Lew. She said she agreed with the basic principles in President Trump’s recent executive order calling for federal agencies to evaluate the efficacy of regulation.Ms. 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 T. Mnuchin, just as often as she met with his predecessor, Jacob J. Lew. She said she agreed with the basic principles in President 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 Ms. Yellen stopped short of rising to its defense. The Fed has its own doubts about some of the postcrisis 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 Ms. Yellen stopped short of rising to its defense.
“I think the evidence on this matter is conflicting,” she said of its impact.“I think the evidence on this matter is conflicting,” she said of its impact.
On Tuesday, in testimony before the Senate Banking Committee, Ms. Yellen said she also favored some reduction in the regulatory burden imposed upon smaller banks. She reiterated that view on Wednesday. “I think we should be heavily focused on using every tool available to us to reduce regulatory burden on those banks,” she said. On Tuesday, in testimony before the Senate Banking Committee, Ms. Yellen said she favored some reduction in the regulatory burden imposed upon smaller banks. She reiterated that view on 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 Ms. Yellen did not endorse a broader rollback of regulation of big banks. But Ms. Yellen did not endorse a broader rollback of the regulations for big banks.
“I think financial regulation has resulted in a stronger financial system and less risk than we had before the crisis,” Ms. Yellen said. “It’s allowed us to have stronger growth and a faster recovery.” “Is it not true that if we would throw off the shackles of unreasonable regulation that we would have had a faster, steeper recovery?” asked Representative Bill Huizenga, Republican of Michigan.
Republicans also pressed Ms. Yellen repeatedly to suspend rule writing until the Trump administration can appoint a new vice chairman for regulation. Representative Andy Barr, Republican of Kentucky and the new chairman of the monetary policy subcommittee, told Ms. Yellen it was “imperative” for the Fed to refrain from issuing new regulations until Mr. Trump has a chance to place his own people at the central bank. Ms. Yellen responded, “I would not generally agree with that.”
“Many financial institutions in my district and around the country are concerned that the Fed may cram through a new wave of regulations before these new governors are confirmed,” Mr. Barr said. “Given the avalanche of red tape produced by Dodd-Frank and the disproportionate costs imposed on small community banks, it’s imperative the Federal Reserve refrain from issuing any new regulations until the new governors are confirmed.” Republicans also pressed Ms. Yellen repeatedly to suspend rule writing until the Trump administration could appoint a new vice chairman for regulation. Representative Andy Barr, Republican of Kentucky and the new chairman of the monetary policy subcommittee, told Ms. Yellen it was “imperative” for the Fed to refrain from issuing new regulations until Mr. Trump had a chance to place his own people at the central bank.
Mr. Trump can quickly fill three of the seven seats on the Fed’s board. Republicans held open two seats by refusing to consider President Obama’s nominees, and a third seat will open in April with the resignation of Daniel K. Tarullo. “Many financial institutions in my district and around the country are concerned that the Fed may cram through a new wave of regulations before these new governors are confirmed,” Mr. Barr said.
Several Democrats on the committee sought to defend the Dodd-Frank Act by pointing to the strength of economic growth. The United States is in the midst of one of the longest expansions in the nation’s history, and job growth has been strong. Mr. Trump can quickly fill three of the seven seats on the Fed’s board. Republicans held open two seats by refusing to consider President Obama’s nominees, and a third seat will open in April with the resignation of Daniel K. Tarullo. Mr. Trump has yet to select nominees for the vacancies.
Representative Maxine Waters of California, the committee’s ranking Democrat, led Ms. Yellen through a call-and-response routine. The Fed has completed the bulk of the new regulations required by the 2010 Dodd-Frank Act, and Ms. Yellen said the regulatory docket was “ relatively light.” But she did not agree to suspend the Fed’s work.
House Republicans have circulated a variety of proposals aimed at constraining the Fed’s approach to monetary policy and subjecting the central bank to increased oversight. The Fed has strongly opposed such changes, and Ms. Yellen suggested on Wednesday that Republicans had not been clear about what issues they wanted to fix.
Lawmakers, she said, should “decide what the problem is that needs to be addressed.”
The House proposals have found little traction in the Senate, but supporters are hoping that the Trump administration will embrace some version of the proposals.
“Clearly, Americans have a newfound expectation that our economy will grow healthier with different policies coming out of Washington,” Mr. Hensarling said.
Several Democrats on the committee sought to defend the Fed and the Dodd-Frank Act by pointing to the strength of economic growth. The United States is in the midst of one of the longest expansions in the nation’s history, and job growth has been strong.
Representative Maxine Waters of California, the committee’s ranking Democrat, led Ms. Yellen through a call-and-response routine that resulted in a list of upbeat indicators.
Has business lending by commercial banks expanded?Has business lending by commercial banks expanded?
Yes.Yes.
How many jobs has the economy added?How many jobs has the economy added?
Sixteen million.Sixteen million.
Have wages increased?Have wages increased?
“By most measures,” Ms. Yellen said.“By most measures,” Ms. Yellen said.
And so it went through a long list of upbeat indicators. But Republicans, early and often, pressed Ms. Yellen to acknowledge that the postcrisis performance of the American economy remained disappointing: Growth has been tepid; labor force participation remains low, productivity growth weak.
But Republicans, early and often, pressed Ms. Yellen to acknowledge that the post-crisis performance of the American economy remains disappointing. Growth has been tepid, labor force participation remains low, productivity growth weak. “Doesn’t this underscore the failure of unconventional policies to deliver the expected results?” Mr. Barr asked.
“Despite all of the extraordinary measures and the unconventional policies, economic activity has still fallen short of F.O.M.C. expectations and has done so throughout the recovery,” Mr. Barr said, referring to the Fed’s policy-making Federal Open Market Committee. Ms. Yellen said it did not, adding, “My reading would be that putting in place those policies has enabled us to add 16 million jobs to the U.S. economy.”
Ms. Yellen responded that the Fed is instructed by Congress to focus on maximizing job growth and holding inflation steady, and said that by those measures the Fed is doing all right. The Fed’s efforts, she said, “enabled us to add 16 million jobs to the U.S. economy.” Ms. Yellen did not offer any new information about the Fed’s plans for monetary policy. She said on Tuesday that the Fed still expected to raise rates three times this year. The Fed’s policy-making committee will next meet on March 14 and 15.
Ms. Yellen did not offer any new information about the Fed’s plans for monetary policy. She said on Tuesday that the Fed still expected to raise rates three times this year. The Fed’s policy-making committee will next meet March 14 and 15.