| SAN FRANCISCO
SAN FRANCISCO Feb 11 In her first public
appearance as Federal Reserve chair, Janet Yellen faced a
barrage of pointed questions from U.S. lawmakers critical of the
central bank's unprecedented efforts to stimulate the economy
and of its oversight of banks.
She kept her cool.
The tone was set right off the top, when House Financial
Services Committee Chairman Jeb Hensarling challenged the Fed's
wide departure from a decades-old monetary policy rule of thumb
that Yellen once called the mark of a "sensible" central bank.
"So that begs the question today, using your words, are you
a sensible central banker, and if not, when will you become
one?" asked Hensarling, a Texas Republican often critical of
current Fed policy.
"Congressman, I believe that I am a sensible central
banker," she replied, unrattled.
In measured tones, she explained that in response to the
financial crisis the rule would have required the Fed to push
interest rates below zero, and the bank had already pushed rates
to between zero and 0.25 percent, as low as considered feasible.
"We need to follow a different approach," she said, guiding
market expectations on the likely future path of rates in as
"systematic and predictable" a way as possible.
John Taylor, the Stanford University professor who initially
wrote the rule and who also has been critical of the Fed's
super-easy policy, was scheduled to appear on a panel
immediately following Yellen's testimony.
Yellen's fluency in answering questions on monetary policy,
the labor market and even Fed independence should not come as a
surprise, given that she has been an active policymaker for a
dozen years and for decades taught economics at the University
of California, Berkeley
"With all of her experiences, she is hardly a rookie," said
Lou Brien, an analyst for DRW Holdings in Chicago. "Yellen can
more than hold her own with that crowd."
In one exchange, she was asked repeatedly if the Fed was
"enabling" government deficits through its massive bond-buying
programs. She was unmoved.
"I don't think it would be helpful, either in terms of
achieving the objectives that Congress has assigned to us or in
terms of Congress' deficit reduction efforts, for us to
purposely raise interest rates in order to weaken the economy,"
she responded. "The likely impact of that weaker economy would
be larger deficits."
One area where Yellen seemed on possibly less sure footing
was in her responses to regulatory questions.
Asked about her role on the Financial Oversight Stability
Council, she freely admitted that she had not attended meetings
before and would face a learning curve.
Representative Patrick McHenry of North Carolina grilled her
about the so-called Volcker rule that restricts banks from
proprietary trading. She declined to agree with his view that
non-U.S. sovereign debt should be given the same exemption as
U.S. debt, saying the issue would need more study.
"I would call this a lack of enthusiasm from you," McHenry,
a Republican, responded.
Yellen was also challenged repeatedly about her opposition
to legislation that would subject the Fed's monetary policy
decision-making to an audit.
Such a law, she said, could prevent the Fed from making
decisions free of political pressure and in the long-run
interest of the economy. Ben Bernanke, whom she succeeded as Fed
chair earlier this month, also opposed the legislation.
"Some of us believe in the old adage, trust but verify,"
said Bill Posey, Republican of Florida, repeatedly breaking in
on Yellen's responses to make his point.
"I would just like to think that at some point, the Fed
could be audited like all official government agencies, much
less one that has the run of the entire economy. ... I like to
think that government gets less corrupt every day, not more
This time, Yellen broke in. "Well, I don't believe that the
Federal Reserve is in any way corrupt."