Media Moves

Fed chair testifies for Senate committee

February 28, 2014

Posted by Liz Hester

After a snowstorm pushed back her appearance before the Senate Banking Committee, Federal Reserve Board Chair Janet Yellen answered a variety of questions Thursday about topics ranging from asset purchases to Bitcoin.

Bloomberg’s Craig Torres led with the tapering of asset purchases:

Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.

“Unseasonably cold weather has played some role,” she said in response to a question today from the Senate Banking Committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”

Yellen repeated the Fed’s statements that the central bank intends to reduce asset purchases at a measured pace, and she said in response to a separate question that the bond-buying program was likely to end in the fall.

At the same time, “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”

Yellen’s testimony to the Senate panel, originally scheduled for Feb. 13, was postponed because of a snowstorm, creating an unusual two-week gap between her appearances before the two committees that oversee the central bank. Since her House testimony, weaker-than-forecast data on retailing, manufacturing and home construction have suggested the economy is slowing, in part because of harsh winter weather.

The New York Times story by Binyamin Appelbaum added some details about the data Yellen was reviewing to make her decision:

Ms. Yellen cited the slow pace of job growth in December and January, weakness in the housing market and disappointing retail sales and industrial production.

The remarks were a shift from Ms. Yellen’s testimony two weeks ago before the House Financial Services Committee. But Ms. Yellen did not change her description of the Fed’s plans, saying that the central bank was still quite likely to keep cutting back on its monthly purchases of Treasuries and mortgage-backed securities.

Senator Charles E. Schumer, Democrat of New York, asked Ms. Yellen whether the Fed would reconsider if it concluded that the cold was not the whole problem.

“Certainly we would be open to reconsidering it,” Ms. Yellen responded, “but I wouldn’t want to jump to conclusions.”

The Associated Press story (via the San Jose Mercury News) by Martin Crutsinger pointed out that Yellen is following in Bernanke’s footsteps:

In both her House and Senate appearances, Yellen sought to emphasize policy continuity with her predecessor, Ben Bernanke, who stepped down last month after eight years leading the central bank.

Yellen said that she, like Bernanke, believed the economy is strengthening enough that the Fed can gradually pull back its monthly bond purchases.

The Fed has cut the pace of bond purchases at both its most recent meetings. It reduced the original $85 billion monthly pace in December and again in January in $10 billion steps to a current level of $65 billion.

Many economists think that as long as the economy keeps improving, the Fed will keep cutting the bond purchases by $10 billion at each meeting this year until ending the program in December.

The Fed has stressed that it’s standing by a plan to keep a key short-term rate at a record low near zero for an extended period. At the past two meetings, it has said short-term rates will remain low “well past” the time unemployment drops below 6.5 percent. The unemployment rate is now 6.6 percent.

Many economists think the first rate hike won’t occur until late 2015. But minutes of the Fed’s last meeting showed that “a few” policymakers felt it might be appropriate to make the first move to raise short-term rates “relatively soon.”

The Fed has held its benchmark for short-term rates near zero since December 2008.

Reuters had a short piece citing Yellen’s remarks that Congress should look into regulating bitcoin:

The U.S. Congress should look into legal options for regulating virtual currencies such as bitcoin, Federal Reserve Chair Janet Yellen said on Thursday.

Japan-based bitcoin exchange Mt. Gox went dark on Tuesday, leaving customers unable to access their accounts. Experts have warned they might not have much recourse to recover their money.

Yellen said the Fed had no jurisdiction over bitcoins, which are created using a network of computers that solve complex mathematical problems and are not traded or held by banks.

Bitcoin aside, the Federal Reserve is holding its policy the same for now, something the market expected. It will be interesting to watch the next round of numbers. If economic data continues to weaken, Yellen may be forced to revisit her current policy. But for now, no change is good.

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