Janet Yellen, nominated to be the next chairwoman 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,” said Yellen, the Fed’s vice chairwoman, in testimony prepared for her nomination hearing today 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.
In three pages of prepared remarks, she said unemployment is “still too high, reflecting a labor market and economy performing far short of their potential” and that inflation is “expected” to remain below the Fed’s goal for 2 percent price increases. She also highlighted areas where the economy has improved, saying housing “seems to have turned a corner” and the auto industry has made an “impressive comeback.”
Yellen in her prepared testimony publicly voiced her views for the first time in seven months on the unprecedented monetary stimulus that she’s supported and that some lawmakers have used to justify voting against her. The hearing is scheduled to start at 10 a.m. in Washington.
She also said that the Fed has “made progress in promoting a strong and stable financial system, but here, too, important work lies ahead.”
Yellen said that capital and liquidity rules, as well as “strong supervision” are important tools to regulate the largest banks. She said that “in writing new rules, however, the Fed should continue to limit the regulatory burden for community banks and smaller institutions, taking into account their distinct role and contributions.”
Yellen, 67, was nominated last month by President Obama to succeed Ben S. Bernanke, whose term at the central bank expires Jan. 31.
In her remarks, Yellen said “the past six years have been challenging for our nation and difficult for many Americans,” crediting Bernanke for averting an even more dire outcome.
“The effects were severe, but they could have been far worse,” Yellen said. “Under the wise and skillful leadership of Chairman Bernanke, the Fed helped stabilize the financial system, arrest the steep fall in the economy and restart growth.”
The banking committee, consisting of 12 Democrats and 10 Republicans, will vote at a later date on whether to advance Yellen’s nomination to the full Senate. She’ll need the support of at least 60 senators to win confirmation.
If confirmed, Yellen will lead the Fed’s efforts to finish implementation of the most sweeping overhaul of financial regulation since the 1930s.