[Trying to follow this in the background amidst much else to do…will update as needed.]
And the key word is…”continuity.” Many of us said Yellen was the “continuity candidate” and she appears to be making that case today as she testifies on monetary policy to the House Financial Services Committee.
…let me emphasize that I expect a great deal of continuity in the FOMC’s approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve’s statutory mandate of maximum employment and price stability.
As far as signaling next steps, no surprises there either so far–again, it’s continuity, not changes that’s the theme I believe she’s trying to impart. And this makes sense regarding “well-anchored expectations”–i.e., the new chair wants to be careful not to undermine the messages the Fed has sent to markets in recent months regarding one of their most important challenges in coming months and years: unwinding monetary support in a way that doesn’t hurt growth.
BTW, the other important challenge, one that has in the past gotten too short shrift, is ratcheting up the Fed’s financial oversight role, something Ms. Yellen has emphasized since her hearing to lead the Fed. In this regard, it was notable to see a section of her testimony devoted to that topic, wherein she mentioned leverage rules, the Volcker rule, resolution authority, derivatives oversight, and more. Obviously, it’s all in the doing, not the saying, and it’s critical for members of Congress sympathetic to financial reform along with the rest of us who care about this to connect the words with actions.
Finally, there was this important signal, reiterating that the Fed recognizes that their 6.5% unemployment benchmark is biased down by labor force exits.
…based on [the Committee’s] assessment of a broad range of measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments–is that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.
To be clear, I’m worried that the Fed is in danger of doing what golfers call “giving up the hole.” That’s where you’re so intent on playing the curves in the green that sinking the putt becomes secondary. There’s a risk that they’re more worried about a smooth unwinding and managing expectations than providing the needed support for a recovery that continues to underwhelm.
But that said, and given that this is her first outing as chair, Ms. Yellen looks to be making a strong and sensible case for steady at the helm.