Previewing Yellen’s confirmation hearings

Janet Yellen prepares to face senators during her confirmation hearing as chairman of the Federal Reserve Borad on Thursday, but the business media was busy Wednesday previewing what she might say and some of the questions she may receive.

The Financial Times took a straightforward lead saying Yellen will face “hostile questions” during her appearance:

Janet Yellen will face hostile questioning at a high-stakes confirmation hearing on Thursday where she will make crucial first impressions as the nominee for chair of the US Federal Reserve.

“I think tomorrow’s hearing will be really, really important for Janet Yellen because in effect she’ll be introducing herself to the American people,” said Stephen Oliner, a former Fed official now at the American Enterprise Institute. “Tomorrow, I think, is a bit of a coming-out party for her.”

Ms Yellen is known for her meticulous preparation, but it will be her first time defending the Fed itself in Congress, making for a big test of her political and communications skills. It will set the template for years of appearances if she is confirmed to the top job and takes over at the end of January.

Ms Yellen has an unusual challenge because she is already a senior member of the Fed’s leadership – most past chairs were nominated from outside the institution – so she has to find a way to communicate her own economic philosophy without giving away too much about current policy.

Unlike in a Fed chair’s semi-annual testimony to Congress, Ms Yellen will be speaking only for herself and not for the Federal Open Market Committee, so she is likely to give fairly brief opening remarks that focus on her priorities rather than the economic outlook or how the Fed might react to it.

The New York Times decided to start their story talking about Yellen’s view that more clear information and direction from the Fed would help markets:

Janet L. Yellen, President Obama’s choice to lead the Federal Reserve over the next four years, has championed the idea that the Fed can stimulate the economy simply by speaking clearly.

Her confirmation by the Senate is regarded by most Democrats and Republicans as all but inevitable.

But even before she takes over, the questions she will begin to confront on Thursday, as she appears before theSenate Banking Committee, are whether the Fed under her leadership can communicate more clearly than it has managed to do in recent months — and whether that is the best the Fed can do to lift the economy from its enduring malaise.

Ms. Yellen, the Fed’s vice chairwoman since 2010, has been a key architect of the push to more fully explain to the public the Fed’s actions, its reasoning and its plans. The theory is that the Fed can exert greater influence over investors, by enlisting them to hold down longer-term interest rates at a time when the Fed has cut short-term rates practically as low as they can go, by detailing an itinerary rather than sending occasional postcards.

She is widely expected to double down on this strategy, assuming she is confirmed as chairwoman.

The Wall Street Journal’s coverage started with talking about the Fed’s role in creating jobs and stabilizing the economy:

When senators question Janet Yellen on Thursday during her confirmation hearing to be the next leader of the Federal Reserve, she will likely turn their attention to the central bank’s “dual mandate” of maximum employment and stable prices.

Ms. Yellen has made this mandate the centerpiece of her argument for the Fed’s unconventional easy-money programs aimed at spurring a stronger economic recovery and lowering unemployment, a point her recent comments suggest she will seek to reinforce.

“While we have made progress, we have further to go,” Ms. Yellen said of the Fed’s role in helping the economy when President Barack Obama named her as his pick last month. “The mandate of the Federal Reserve is to serve all the American people, and too many Americans still can’t find a job and worry how they’ll pay their bills,” she said, adding that the Fed can also ensure inflation doesn’t undermine “the benefits of a growing economy.”

The Fed’s dual mandate was established in 1977, when Congress wrote into the Federal Reserve Act that the central bank must pursue both maximum employment and stable prices.

It is a controversial requirement in political circles because some Republicans think the employment component has taken the Fed’s focus off the more important and achievable mission of low inflation. It is also unlike the mission of many other central banks, for which controlling inflation is the sole focus.

The Bloomberg story started with Yellen’s comments on helping the economy improve:

Janet Yellen, nominated to be the next chairman of the Federal Reserve, said the economy and labor market are performing “far short of their potential” and must improve before the Fed can begin reducing monetary stimulus.

“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen, the Fed’s vice chairman, said in testimony prepared for her nomination hearing tomorrow before the Senate Banking Committee. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

The remarks show Yellen is committed to the central bank’s strategy of attempting to boost the economy and lower 7.3 percent unemployment, more than four years after the economy began to recover from the longest and deepest recession since the Great Depression. She also signaled support for capital and liquidity rules to help reduce the perception that some banks are too big to fail.

All different leads and all valid points that Yellen will have to answer during her confirmation hearing. It will be interesting to see how far she is able to go without giving away the Fed’s current thinking. She will likely face some tough questions, but it will remain to be seen how many she will be able to answer.