By Kate Davidson
Federal Reserve Chairwoman Janet Yellen on Wednesday fended off Republican criticism of the central bank's efforts to boost the economy, and repeated her warnings that proposals to rein in the Fed could compromise its independence.
Ms. Yellen, testifying before the House Financial Services Committee, touted the economy's improvement since the financial crisis, including a substantially lower jobless rate, but acknowledged that growth overall had been "quite disappointing."
Republican lawmakers peppered Ms. Yellen with questions about the economy's lackluster growth since the recession, and criticized the central bank for unconventional policies -- such aslowering short-term interest rates to near zero and undertaking several rounds of asset purchases -- which they said hadn't done much to spur the economy.
"After eight years, there is zero evidence that zero interest rates and a bloated Federal Reserve balance sheet leads to a healthy economy," committee Chairman Jeb Hensarling (R., Texas) said.
Ms. Yellen defended those policies, which she said "enabled us to add 16 million jobs to the U.S. economy, bringing the unemployment rate down to 4.8%."
Committee Democrats repeatedly pointed to evidence of an improving economy during the hearing, and warned that Republican efforts to roll back financial regulations and repeal the Affordable Care Act could undercut further progress.
Rep. Maxine Waters, of California, the top Democrat on the committee, accused Republicans of "deflecting from their own failure to provide a fiscal stimulus that would have complemented, rather than undermined, the Fed's bold efforts in recent years."
Ms. Yellen also repeated her opposition to congressional efforts to rein in the central bank -- such as requiring the Fed to adopt a mathematical rule to guide policy and subjecting its interest-rate decisions to a government audit -- saying they could compromise its independence.
Asked whether Congress should establish an independent commission to review the Fed's structure, Ms. Yellen encouraged lawmakers to "decide what the problem is that needs to be addressed."
"So you don't think it's a good idea to have an extra pair of eyes," asked Rep. Dennis Ross (R., Fla.).
"We have lots of pairs of eyes," Ms. Yellen responded, citing the numerous ways the Fed is already subject to oversight.
Such proposals have stalled in previous years in the face of Senate opposition, but some Republicans are hopeful they might have better prospects under the Trump administration.Ms. Yellen also defended the central bank's decision to hold off on shrinking its large portfolio of assets until the process of raising short-term interest rates is well under way.
The Fed raised its benchmark federal-funds rate in December to a range between 0.5% and 0.75%, and penciled in three quarter-percentage point increases this year to prevent the economy from overheating as it strengthens.
Ms. Yellen said the Fed has decided the best way to tighten financial conditions is by raising the fed-funds rate, but added there is no "unique level" for it to reach that would trigger the process of shrinking the central bank's asset holdings, or balance sheet.
She said Fed officials plan to discuss their strategy for reducing the balance sheet at coming meetings, reiterating remarks she made to the Senate Banking Committee on Tuesday.
"We are committed to shrinking our balance sheet but consider it best from the standpoint of sustaining the recovery to do that in a gradual and orderly way," she said.
Ms. Yellen also pushed back on suggestions the Fed should stop engaging in conversations with international regulators over rules that would apply to U.S. financial firms.
Rep. Patrick McHenry (R., N.C.), the panel's vice chairman, sent a letter to Ms. Yellen earlier this year ordering the Fed to halt the negotiations in light of an executive order from the Trump administration that called for a broad review of regulations.
Mr. McHenry and others, including at least one senator on Tuesday, also said the Fed should wait until the White House fills vacancies on the Fed board of governors, including the role of vice chairman for supervision, before pursuing new rules.
Ms. Yellen said nothing binds the Fed or other U.S. regulatory agencies to agreements reached with international regulators, such as the Financial Stability Board or Basel Committee on Banking Supervision. Indeed, in some instances, Ms. Yellen said the Fed has voiced its disagreement with certain rules and doesn't plan to implement them.
"Nothing is effective in the United States unless we go through a rule-making process here," she said.
Ms. Yellen, in prepared remarks that were identical to those she delivered to the Senate panel Tuesday, repeated that the Fed likely would raise short-term rates at one of "our upcoming meetings" if the economy continued to improve as expected. The Fed's next policy meeting is March 14-15.
She also said the Fed has a "relatively light" schedule for proposing new rules over the next few months before Fed governor Daniel Tarullo resigns in April. She reiterated her agreement with the core principles of the administration's executive order requiring regulators to review the economic impact of financial rules.
"We will cooperate fully once it's under way," Ms. Yellensaid of the review process, adding that she looks forward to working with and meeting regularly with Treasury Secretary Steven Mnuchin.
During the Obama administration, Republicans criticized Ms. Yellen for meeting more regularly with administration officials, including then-Treasury Secretary Jacob Lew, than with GOP lawmakers. Ms. Yellen, like her predecessors, has typically met every couple of weeks with the Treasury secretary or other White House officials.
Speaking at the White House daily press briefing one day after being sworn into office, Mr. Mnuchin noted that there is a tradition of the Treasury secretary meeting with the Fed leader on a regular basis. "And I look forward to that," he said.
Write to Kate Davidson at firstname.lastname@example.org
(END) Dow Jones Newswires
February 15, 2017 14:28 ET (19:28 GMT)
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