WASHINGTON Feb 27 The following are highlights
of Federal Reserve Chair Janet Yellen's testimony on the U.S.
economy and monetary policy to the Senate Banking Committee on
Yellen delivered the Fed's semi-annual Monetary Policy
Report to the House Financial Services Committee on Feb. 11, but
her testimony to the Senate panel scheduled for Feb. 13 was
delayed because of a winter storm.
YELLEN ON OVERNIGHT FIXED-RATE REVERSE REPURCHASE AGREEMENT
"We are engaging in this program, you mentioned this is
something technical, but we want to be able to firmly control
our short-term money market rates ... When the time ultimately
comes, which is probably a long way off, we do want to tighten
monetary policy and raise our target for short-term interest
rates. We would like to be able to execute that in a very smooth
way so that we have good control over the level of short-term
YELLEN ON FORWARD GUIDANCE ON INTEREST RATES
"There are many different views on our committee about what
the right way is to cast forward guidance ... The unemployment
rate is not a sufficient statistic for the state of the labor
market. There is no hard-and-fast rule about what unemployment
rate constitutes full employment and we need to consider a broad
range of indicators. Many members of the committee have
emphasized this point and it's one I agree with. It moves in the
direction of qualitative guidance. On the other hand, we do want
to give markets as much of an indication of how we expect to
conduct policy as we can."
YELLEN ON RATE PAID ON EXCESS RESERVES
"I think that lowering that rate would have very limited. It
goes in the right direction, but would have a very limited
effect on bank lending.
"We have worried about what impact it would have on money
markets that we operate in, and not wanting to completely
disrupt money market activities ... It's something that we have
considered and could consider going forward, but there are
conflicting things that are going on there."
YELLEN ON DODD-FRANK FINANCIAL REFORMS
"We will, in all of our rule makings, do our best to
minimize the burden on community banks and will listen very
carefully through our contacts at community banks to understand
what the burdens are and to minimize them where we can."
YELLEN ON BITCOIN PROBLEMS
"I think it's important to understand this is ... taking
place entirely outside the banking industry and to the best of
my knowledge there is no intersection at all in any way between
bitcoin and banks the Federal Reserve has the ability to
supervise and regulate. So the Federal Reserve simply does not
have the authority to supervise or regulate bitcoin in any way."
YELLEN ON CONCERNS EASY MONEY POLICY CAUSED MARKET EXCESSES
"We are watching very carefully for the development of any
such excesses. We are very focused on not allowing such a thing
to happen again ... While there might be a few areas where I
have concerns, such as deteriorating underwriting standards in
leveraged lending, farmland prices, a few things, I don't see
those excesses having developed at this point.
"With respect to housing prices, they have rebounded
significantly, but remain not back to their peak levels by any
means. And price-rent ratios in housing certainly remain in
normal ranges. So I don't think we have promoted excesses,
certainly not at this stage."
YELLEN ON RAISING MINIMUM WAGE
"There's considerable debate about just what the employment
impact of this would be. CBO (Congressional Budget Office) is
qualified as anyone to evaluate that literature and I wouldn't
want to argue with their assessment. I mean, there are a range
of studies and they cited them, but I wouldn't want to argue
with (them). They're good at this kind of evaluation ... I think
they also ... indicated that a large number of individuals would
see their incomes raised as a consequence."
YELLEN ON CAPITAL REQUIREMENTS AT BIGGEST BANKS
"This is high on our regulatory agenda with this coming
year. We have out an initial proposal on this. I can't give you
an exact time. We will certainly be working with the other
agencies to finalize it.
YELLEN ON HOW LONG IT WILL TAKE ECONOMY TO NORMALIZE
"Several years, I think."
YELLEN ON REACHING FULL EMPLOYMENT
"To me it is the state of the job market in which people are
able to find, in a reasonable period of time, jobs for which
they are qualified and there is no single metric that would
enable me to tell you when we will reach that."
YELLEN ON REGULATIONS FOR 'TOO-BIG-TO-FAIL' FIRMS
"I'm slightly surprised that he (Fed Board Governor Daniel
Tarullo) said we are 'nowhere close' (on resolving
too-big-to-fail) because I personally think we've made quite a
lot of progress in putting in place regulations that will make a
huge differences to this....
YELLEN ON POTENTIAL INSTABILITY IN FINANCIAL MARKETS
"I agree that an environment of low rates ... and we have
had a long period of low interest rates ... can give rise to
behavior that poses threats to financial stability and therefore
we need to be looking at that very carefully and we are doing so
in a very thorough way, I believe."
YELLEN ON MONITORING ASSET PRICES, LEVERAGE AND CREDIT
"There are a number of things that we are monitoring:
measures of asset prices and whether or not they appear to be
diverging from historical norms ... We're looking at leverage
which builds up and leverage can be very dangerous to the
financial system ... We're looking at credit growth to see
whether or not that has potential worrisome trends ... In
addition to that, we're looking particularly to our stress tests
at financial institutions. In a low-interest rate environment we
have to worry about whether or not they're appropriately dealing
with interest rate risk."
YELLEN ON UNDERWRITING STANDARDS, LEVERAGED LENDING, OTHER
"I would say at this stage I don't see concerns but there
are pockets of a few things that we've identified that do
concern us. For example, underwriting standards and leveraged
lending clearly appear to be deteriorating. We have addressed
that with supervisory guidance and special exams and will
continue to be very vigilant in that area ... There are a few
areas within asset price valuations, broadly speaking. I
wouldn't worry but there are a few areas where I would be
concerned. Many people have emphasized farmland as a concern,
YELLEN ON ASSET PURCHASES
"Asset purchases are not on a preset course. If there is a
significant change in the outlook, certainly we would be open to
reconsidering, but I wouldn't want to jump to conclusions here."
YELLEN ON FED'S 6.5 PERCENT JOBLESS RATE THRESHOLD
"Six-and-a-half percent unemployment is not the
(policy-setting) committee's definition of what constitutes full
employment. The range of views on that among committee members
is substantially lower ... The unemployment rate is not a
sufficient statistic to measure the health of the labor market.
An additional 5 percent, an unusually high fraction of our labor
force, is working part time for economic reasons ... and we have
an unusually high fraction of Americans who are unemployed and
have been for substantial amounts of times. So, as we go to
fuller consideration how is the labor market performing, we need
to take all of those things into account."
YELLEN ON GSE REFORM
"I strongly support, and would urge the Congress to address
the issue of GSE (government sponsored enterprise) reform. We've
gotten a mortgage system that in a way remains very highly
dependent on government backing and it fails to meet the very
important objective of successful securitization without
YELLEN ON FISCAL DRAG
"Fiscal policy really has been quite tight and has imposed a
substantial drag on spending in the U.S. economy over the last
several years ... The drag is likely to lessen substantially
during the current year, but nevertheless there remains some
drag. Of course it is true that because there has been fiscal
policy drag the burden on monetary policy has been larger."
YELLEN ON ECONOMIC RECOVERY
"I do think the economy is beginning to recover and we have
made progress. And in the minimum, I would hope fiscal policy
would do no harm."
YELLEN ON MONETARY POLICY
"We see accommodative monetary policy as remaining
appropriate for quite some time. There's no conflict at all at
the moment between the two goals the Congress has assigned to us
of promoting maximum employment and price stability."
YELLEN ON RULES FOR INSURANCE COMPANIES
"We are looking very carefully to design an appropriate set
of rules for companies with important involvement in insurance
to recognize that there are very significant differences between
the business models of insurance companies and the banks that
supervise and we are taking the time that is necessary to
understand those differences and to attempt to craft a set of
capital and liquidity requirements that will be appropriate to
the business models of insurance companies."
YELLEN ON RECENT SOFTNESS IN ECONOMIC DATA
"Since my appearance before the House committee, a number of
data releases have pointed to softer spending than many analysts
have expected. Part of that softness may reflect adverse weather
conditions, but at this point it's difficult to discern exactly
how much. In the weeks and months ahead, my colleagues and I
will be attentive to signals that indicate whether the recovery
is progressing in line with our earlier expectations."