How Yellen fends off critics and calms investors at hearing

New Fed chairman adopts consistent approach and continuity stance at lawmakers' hearing

PUBLISHED : Thursday, 13 February, 2014, 1:24am
UPDATED : Thursday, 13 February, 2014, 1:24am


Janet Yellen pursued a simple strategy when handling sceptical lawmakers in her first public comments since taking over as the United States Federal Reserve chief: stand your ground, be consistent, signal continuity at the top.

Yellen, addressing lawmakers on the House Financial Services Committee on Tuesday, struck a note of unity with her predecessor, Ben Bernanke. She embraced Bernanke's dual outlook on the economy: it is improving enough to withstand a pullback in the stimulus yet still needs the help of low interest rates.

When her questioners turned aggressive, Yellen stoutly defended the Fed's approach to the 2008 financial crisis and the recession. The new chairman, delivering the Fed's twice-yearly report to Congress, rebuffed suggestions that its stimulus efforts were ill-conceived or stricter financial rules were squelching growth.

Unlike many government officials at Washington hearings, Fed leaders strive to protect their political independence by avoiding confrontation. Yellen kept her guard up yet aimed not to sound combative.

She dropped no hints of how her leadership might depart from Bernanke's. She stressed that the Fed would decide whether to continue paring its bond purchases - and eventually to raise short-term rates - based on how the economy improved.

At times, her descriptions of Fed policy and strategy mirrored Bernanke's nearly to the word, in seeking to reassure investors on a seamless transition. It appeared to work; Yellen's testimony contributed to a rally on Wall Street.

"She clearly has read the Fed playbook on how to not say a lot," said Brian Gardner, head of Washington research for Keefe, Bruyette & Woods.

Yellen, 67, offered to "stay all day", noted committee chairman Jeb Hensarling. Bernanke and his predecessor Alan Greenspan tended to sit for questions for only two or three hours.

During her testimony of almost five hours, Yellen repeated the Fed's assurances that it expects to keep its key short-term rate near zero "well past" the time the unemployment rate drops below 6.5 per cent as long as inflation remains low.

That assurance provoked a tart response from Republicans. Before it changed its likely timetable last year, the Fed had earlier hinted that unemployment at 6.5 per cent would be when it would start to consider raising short-term rates, they noted.

"I believe that I am a sensible central banker, and these are very unusual times," Yellen said.

Yellen ultimately disarmed some lawmakers simply by saying nothing provocative.

"She avoided all the major pitfalls that were presented to her," said Jason Rosenstock, a lobbyist at Thorn Run Partners. "If the goal of the chair is to do no harm in these hearings, then she succeeded."