WASHINGTON, D.C.: The US central bank chief sparred with legislators Wednesday over its responsibility for the weak economic recovery, bank regulations and its participation in international bodies.
In often contentious, marathon testimony lasting nearly four hours, Federal Reserve Chair Janet Yellen defended the Fed’s role in helping the US economy to rebuild after the worst crisis since the Great Depression, pointing to the solid job creation and growing incomes.
And she deflected the attempt by one representative to keep the Fed away from international regulatory bodies until President Donald Trump has time to get his team in place, amid his focus on sharply curtailing rules in all areas.
“The economy is recovering from a very severe crisis,” Yellen said, as one representative after another said that former president Barack Obama is the only US president since World War II not to see a single quarter during which there was three percent growth.
However, no recession in that period has been as severe.
It was unclear what GDP figures the legislators were citing, but official data from the Commerce Department’s Bureau of Economic Analysis recorded seven quarters during Obama’s eight years in office with growth of more than three percent.
The best annual rate, however, was the 2.6 percent growth seen in 2015.
Yellen highlighted the 4.8 percent unemployment rate and the 16 million jobs created since February 2010, the low point of the financial crisis.
“The Federal Reserve has put in place highly accommodative monetary policies meant to spur spending in the economy… to achieve the goal of maximum employment and price stability,” she said. “I believe we’re coming very close to achieving those objectives.”
And, she said, the US economy has “recovered more quickly, for example, than EU economies have in the aftermath of the crisis.”
However, she cautioned that the Fed does not have the tools to address every issue besetting the economy, and called on Congress to put in place policies that would spark improvements in productivity that would increase growth.
“There are limits on what the Fed can accomplish.”
That includes addressing slow income growth, which she said dates back to the 1980s, and income inequality.
In the past three decades, those in “the bottom half of income distribution have seen no real wage increases,” while “disproportionate gains have gone to those at (the) high end of wage distribution,” Yellen said.
That dynamic is creating many “dissatisfied Americans.”
In another exchange on the second day of her semi-annual testimony —usually livelier than her appearance before the Senate—Representative Patrick McHenry, a North Carolina Republican, again urged Yellen to desist from any negotiations with international organizations.
But Yellen said participation with the Financial Stability Board and the Basel Committee on Banking and Supervision, which discuss best practices in banking regulation, is part of the supervisory duties assigned to the Fed by Congress.
Even so, no regulations are adopted in the United States without prior announcement and a full review, she said.
“We participate regularly as part of our established responsibilities,” she said, denying that constitutes a negotiation.
McHenry sent a letter to Yellen on January 31 calling for the Fed to halt “unacceptable” participation in international forums on financial regulation, given “the clear message delivered by President Donald Trump in prioritizing America’s interest in international negotiations.”
He said the structures of these organizations were “secretive” and must be “re-evaluated.”
Yellen’s February 10 response noted that the Treasury Department also attends these international meetings, which allow them to “influence the standards in ways that promote the financial stability of the United States and the competitiveness of US firms.”
In her testimony, however, she agreed on the need to reduce the regulatory burden on banks, especially small ones.