| WASHINGTON, July 16
WASHINGTON, July 16 Federal Reserve Chair Janet
Yellen defended the central bank's independence on Wednesday at
a U.S. congressional hearing, handling tough questions from
Republican lawmakers who want to rein in the Fed's authority.
Yellen's prepared remarks on the economy and Fed policy were
identical to those from her appearance on Tuesday before the
Senate Banking Committee, where she stood by her view that an
accommodative monetary policy is still needed even though the
economy is recovering.
On Wednesday, Yellen told the House of Representatives
Financial Services Committee that she saw sufficient growth to
support gains in the labor market and that credit growth and
leverage were at moderate levels.
She also addressed concerns raised about the Fed's oversight
of financial institutions and its use of re-purchase agreements.
Republican members of the panel peppered Yellen with sharper
questions than she faced during her Senate appearance,
criticizing the Fed for not operating with enough transparency.
Committee Chairman Jeb Hensarling of Texas asked if Yellen's
weekly discussions with the U.S. Treasury secretary should be
disclosed to the public.
"I'm not willing to report, on a weekly basis, private
conversations," Yellen responded, adding, however, that any
agreements that came from such discussions would be disclosed to
Hensarling asked Yellen about a Republican-backed bill
introduced this month that would require the Fed to conduct more
cost-benefit analyses, provide transparency for Fed stress tests
on banks and on international regulations, and take a more
rules-based approach to monetary policy.
"The overwhelming weight of evidence is that monetary policy
is at its best in maintaining stable prices and maximum
employment when it follows a clear, predictable monetary policy
rule," Hensarling said.
Yellen said it would be a "grave mistake" for the Fed to
commit to a rules based approach to monetary policy, explaining
that sticking to such rules after the 2007-2009 financial crisis
hit would have made the economic situation even worse.
In a testy exchange, Representative Bill Huizenga, a
Republican from Michigan, laid out the rules of a new bill that
he co-sponsored and which is aimed at making the Fed more
transparent, reminding Yellen that a requirement for the Fed to
follow a rules-based approach grants the flexibility to change
course when needed.
Scott Garrett, a New Jersey Republican, also took issue with
the Fed's ability to intervene in troubled financial
institutions, expressing worry of more firms becoming eligible
for taxpayer protection in a crisis.
Yellen, who answered each question slowly and deliberately
in a tone that hardly changed, replied that such action from the
Fed would only come in extreme circumstances.
Regarding the Fed's current use of reverse repurchase
agreements for excess bank reserves, one lawmaker expressed
concern that it was a dramatic expansion of the Fed's authority.
"We have discussed and are aware of the potential, if it's
available on a very large scale and can be expanded and
contracted very quickly, to create financial stability risks,
and we absolutely intend to make sure that we address those
risks," Yellen said in response to the lawmaker.
Yellen's appearance in front of the House panel is part of
the Fed's required, semi-annual delivery of its economic and
monetary policy outlook to Congress.
(Additional reporting by Jonathan Spicer in New York and Moriah
Costa in Washington; Editing by Paul Simao)