Janet Yellen, who is President Barack Obama’s nominee to be Chair of the U.S. Federal Reserve, will sit before the Senate Committee on Banking, Housing, and Urban Affairs at 10:00 a.m. on Thursday and face what many are expecting to a series of tough questions. Yellen, who has served as Vice Chair since 2010, is expected to face particularly tough questioning from the panel’s 10 Republican members, some of whom have been openly critical of both current Fed policy and Yellen’s position on monetary policy.
The main attraction tomorrow will be the question and answer session, but Yellen’s testimony will serve as an important appetizer. The testimony was posted to the Federal Reserve website in advance of the hearing.
“I approach this task with a clear understanding that the Congress has entrusted the Federal Reserve with great responsibilities,” Yellen wrote. “Its decisions affect the well-being of every American and the strength and prosperity of our nation. That prosperity depends most, of course, on the productiveness and enterprise of the American people, but the Federal Reserve plays a role too, promoting conditions that foster maximum employment, low and stable inflation, and a safe and sound financial system.”
The Fed is currently engaged in a historic, ongoing program of monetary easing that has helped stimulate business activity and reduce unemployment without increasing inflation. In fact, inflation — as measured by the price index for personal consumption expenditures — is, if anything, low, climbing just 1.2 percent on the year in September. The Fed has set an inflation target of 2.0 percent and a 2.5 percent inflation threshold. If inflation expectations breach the threshold, the Fed has indicated that it would reduce stimulus.
Relatively low inflation — coupled with underwhelming economic growth — has generally been interpreted as a “green light” for policymakers to continue asset purchases in an attempt to drive down unemployment. This interpretation has troubled some market watchers who are concerned that inflation will finally catch up with monetary easing in 2014, and Yellen — described by most as a dove — will tolerate the price pressure in an increasingly ineffective attempt to reduce unemployment. ”We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession,” said Yellen.
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