Yellen Expected to Be Pushed to Defend Fed’s Strategies

Expect lawmakers to turn up the heat when Federal Reserve Chairwoman Janet Yellen returns to Capitol Hill today for the second round of her two-day semiannual monetary policy testimony.

The Fed chief faced some pointed questions Tuesday from the Senate Banking Committee, including queries about the Fed’s handling of big bank resolution plans, the effectiveness of its low-rate policies and its efforts to promote diversity across the Fed system. But the exchanges were mostly cordial.

Her appearances before the House Financial Services Committee have tended to be more acrimonious. The House committee is likely to spend much more time pushing Ms. Yellen to defend the Fed’s regulatory regime, including recent suggestions from senior Fed officials that the biggest banks may need to bulk up their balance sheets further to pass the Fed’s annual stress tests.

House GOP lawmakers also have been more critical of the Fed than their Senate colleagues on accountability and transparency issues.

Republicans could press Ms. Yellen on the recent cyberheist of an account at the New York Fed and reports of hacking incidents at the Fed board. They also may seek details on whether someone inside the Fed leaked regulators’ assessments of big banks’ living wills to The Wall Street Journal—now the subject of a government watchdog investigation.

House Democrats may echo their Senate counterparts in pushing for more diversity in the upper ranks of the Fed. In February, several committee Democrats raised concerns about the uneven economic recovery for African-Americans and Hispanics, which Ms. Yellen addressed in her prepared testimony Tuesday.

Sen. Elizabeth Warren (D., Mass.) said at the Senate committee hearing Tuesday that Congress should “take a hard look” at changing the selection process for regional Fed presidents “so we can all benefit from a Fed leadership that reflects a broad array of backgrounds and interests.” Listen for House Democrats to back her up Wednesday.

On the economy and interest rates, Ms. Yellen is likely to repeat the main messages of her testimony Tuesday, her press conference last week and her recent speech in Philadelphia.

“Considerable uncertainty about the economic outlook remains,” Ms. Yellen said Tuesday. Subpar growth could be here to stay, global uncertainties remain and domestic demand may falter, she said. Long-run headwinds at home and abroad may mean rates are likely to stay low for longer, because the rate needed to keep the economy operating near its potential is low by historical standards, she said.

She also may be questioned for a second day on the potential fallout from the U.K.’s referendum Thursday on whether to leave the European Union. Ms. Yellen said Tuesday it was unclear what effect a vote to leave the EU would have, but it could lead to volatility in world markets “that would negatively affect financial conditions and the U.S. economy.”

Nasdaq/WSJ

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell