Janet Yellen, Chair of the US Federal Reserve, spoke publicly for the first time since December as she delivered her bi-annual Monetary Policy Report - the first time she has spoken to a Republican-controlled Senate. Perhaps not surprisingly, the overall tone of her statement maintained the "wait and see" approach that has been her modus operandi since taking over the Fed just over a year ago.
Ms Yellen's testimony included pre-prepared remarks on the economy and on the prospects for the first rate hike in the US since 2007. The Fed has hinted several times that an increase in interest rates is on the cards this year, perhaps as soon as June, with the American economy recovering at a fast pace. That still seems to be the case with Ms Yellen confirming that the Fed will make its decisions on rates on a "meeting-by-meeting" basis. The strong US economy was highlighted by Ms Yellen's comments on strong labour market data, including a substantial decline in long-term unemployment and Gross Domestic Product growth.
However, she also mentioned disappointment in the continued slow rate of wage growth, a sluggish housing market and below the Fed’s 2 per cent inflation target. Ms Yellen also noted the impact of the plunge in oil prices, both positive and negative possible outcomes, and weak economic growth and demand outside the US, especially in Europe and China.
Ms Yellen's testimony was somewhat more hostile than at any time over the last 12 months, mainly because Richard Shelby, a Republican from Alabama, is now chairing the Senate Banking and Finance Committee.
Mr Shelby challenged Ms Yellen on possible reform of the Fed, suggesting that the Vice Chairmanship of the Fed should change more regularly and that regional reserve banks should be given more influence. Ms Yellen replied that Congress has the ability to run the Fed as it sees fit, but that she did not feel that the structure of the Fed's decision making process needed reform.
Mr Shelby campaigned and voted against Ms Yellen’s appointment and has hinted that he will support unspecified reforms of the Fed. Senator Rand Paul, a Republican from Kentucky, has sponsored an "audit the Fed" bill which, although unlikely to pass, is likely to attract significant support in the Senate and the House of Representatives.
Ms Yellen said today that she will "strongly oppose" the Bill proposed by Senator Paul. Its wording is somewhat misleading – the Federal Reserve is already audited in the accounting sense, and the results of those audits are available publicly. What Mr Paul wants is to audit the decision-making process by which the Fed arrives at its decisions regarding interest rates – in other words, injecting politics into monetary policy decisions and threatening the independence of the Fed. Ms Yellen concluded her comments on that bill by saying "without a shadow of a doubt independent central banks perform better".Reuse content