WASHINGTON At Janet Yellen's first appearance on Capitol Hill as head of the Federal Reserve Board, the country's top central banker did little to depart from her predecessor's views on key issues, often cautiously echoing his message from the past eight years.
Yellen, who assumed office only 11 days ago, easily handled questions posed on monetary policy before the House Financial Services Committee on Tuesday as she delivered the central bank's semiannual report to Congress.
But the new Fed chair seemed less comfortable when asked about bank regulatory matters, and offered opinions that closely matched those expressed by former Fed Chairman Ben Bernanke.
Following are the seven ways Yellen's Fed is staying the course:
1. No "preset course."
Yellen reiterated the Fed's plan to take a measured approach in unwinding its now $65 billion quantitative easing program. Mirroring the Federal Open Market Committee's last statement in January, she sent the message to the public and markets that policymakers were not following a "preset course" and would continue to make future policy decisions based on incoming economic data.
2. "Monetary policy is not a panacea."
Bernanke employed this phrase at nearly every congressional appearance as he tried to coax lawmakers to tackle longer-term fiscal and structural issues. Yellen made the same comment, also suggesting it was "absolutely appropriate for Congress to consider other measures" to help bring the 6.5% unemployment rate down even further, such as creating programs to improve the skills of the labor force.
3. Don't audit the Fed.
Yellen didn't waiver from pushing back on ongoing legislative efforts to audit the central bank. She made explicit she would "strongly oppose" any interference with the Fed's independence over its monetary policy. She said such an audit would bring "political pressures to bear on the committee's judgment about what is the appropriate way to implement monetary policy." The central banker agreed that the Fed should be held accountable by Congress to maintain its dual mandate, but having a government watchdog second guessing every decision made by the Fed at a much more hastened pace would be risky. "Congress wisely made the Fed independent in the implementation of [monetary] policy because it was understood that we sometimes have to make difficult decisions that would be hard for the Congress to make in the best long-run interests of the country and enabling us to make those decisions free of short-term political pressure is critical to maintain our independence," Yellen said.
4. Let's keep the central bank's dual mandate.
Bernanke has generally deferred to Congress when asked about changing the structure of the Fed's goals into a single mandate. But Yellen signaled she would be less willing to acquiesce to such revisions. "I strongly support both parts of the Federal Reserve's dual mandate," she said. "I have led the committee to produce a statement concerning its longer-term policy strategies and goals that puts both of these on an equal footing."
5. It's time for housing finance reform.
After being politically admonished for its 2012 housing white paper, top Fed officials have refrained from advising Congress on how to proceed with reform of the government-sponsored enterprises. But Bernanke and now Yellen have both urged lawmakers to at least make it a near-term priority. "I think it's really very important for Congress to put in place a new system to address GSE reform," Yellen said. "I think to really get housing back on its feet, it's important for Congress to put in place a new system and to explicitly decide what the role of the government should be in helping the housing sector." The central banker warned that the current system, which has kept Fannie Mae and Freddie Mac on the government's books for more than five years, poses "systemic risk."
6. We care about community banks.
The fallout from the final Basel III capital rules was a visceral reminder to U.S. regulators that community banks will fight efforts to apply rules designed for the largest institutions to smaller banks. The forceful pushback has since prompted regulators to now explicitly detail in "cheat sheets" attached to regulations on how new requirements would be applied to smaller institutions and to engage with them from the outset. Yellen tried to convey the Fed's sentiment that it did not want to unintentionally harm smaller firms. "In our role as bank supervisors we have tried to be very cognizant of the possibility that overzealous supervision could diminish the willingness of banks to make loans to creditworthy borrowers," she said. "We have worked carefully with our supervisors to make sure that they're not taking on policies that would discourage lending to small businesses."
7. Sovereign what?
Fed chairs have traditionally placed their focus primarily on monetary policy, putting bank regulation and supervision on the back burner. That was true under Bernanke, who was forced to come up with a creative way to help stimulate the economy after lowering the federal funds rate nearly to zero for more than five years. While Bernanke created the Fed's bond buying program, Yellen's tenure will be consumed by how to safely and slowly unwind the bank's stimulus strategy and shrink its $4 trillion balance sheet. Her focus on monetary policy was evident when she was forced to move off that topic to other areas. For example, she was pressed about why the U.S. was not following the lead of the European Union in excluding sovereign debt as a risk-free asset. A visibly perplexed Yellen didn't have a precise answer to the question, suggesting it would be something she "would have to look at more carefully."
Overall, Yellen fared better on bank issues during her nomination hearing last year in front of the Senate Banking Committee. She will have a chance to repeat her performance on Thursday, when she is scheduled to testify in front of the panel again.
Donna Borak is the Federal Reserve reporter for American Banker.
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