The Chair of the Federal Reserve Board Janet Yellen deliver her semi-annual Monetary Policy Report and completed her second day of testimony Wednesday, this time testifying before the House Committee on Financial Services.
Chairman of the House Committee Representative Jeb Hensarling (R-Texas) signaled early on that, although the report that Yellen submitted to the house was identical to the one that she offered the Senate on Tuesday, the tone and topics of conversation would be different. It was the toughest round of questioning she has faced since assuming the chairmanship of the Fed earlier this year.
Hensarling opened the hearing by making a strong opening statement in favor of a Republican bill that calls for more transparency from the Fed in its policy making decisions and requires central bank to follow mathematical rules when considering when to adjust monetary policy such as interest rate adjustments.
Yellen delivered an opening statement of the same tenor as yesterday, emphasizing that, while the economy had improved, the economic recovery was still too fragile to deviate from current Fed Policy.
When pressed by Hensarling about her position on the House bill, Yellen echoed her testimony to the senate on Tuesday that the Fed is as open in its process as is appropriate and that making policy decisions on the basis of a mathematical formula would be problematic.
She characterized the Fed as the most transparent central bank in the world and made the case that she needs flexibility when setting Fed policy.
"It would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule," she told the Committee. "It is utterly necessary for us to provide more monetary policy accommodation than those simple rules would have suggested.”
She balked at the assertion by Representative Bill Huizenga (R-Michigan) that the bill allowed the Fed control because it gave them the ability to set the rules that it would follow before any congressional oversight took place.
She cited a lack of evidence that adopting stringent rules was a prudent way to set monetary policy. Later she would add that if the rules had been in place during the financial crisis they would have performed "miserably" and produced "dreadful" results. “A rule is useful input, but I just won’t go further than that,” Yellen said
In the remainder of her testimony, the she struck substantially the same tone as she did in the Senate on Tuesday. She was noncommittal on a timeline for raising interest rates noting that although most analyst believe that the rate hike will come in 2015, “there is no clear date,” and the timing would be determined by indicators of economic improvement.