Senate Confirms Yellen — Now the Hard Part Begins

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Economist Janet Yellen smiles as US President Barack Obama announces her nomination for as Federal Reserve chairman at the White House in Washington, DC, on October 9, 2013. Yellen, 67, will be the first woman ever to lead the Fed, and is widely expected to sustain Bernanke's focus on supporting the US economy until joblessness can be brought down.  
National Journal
Catherine Hollander
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Catherine Hollander
Jan. 6, 2014, 1:06 p.m.

The Sen­ate voted 56-26 on Monday to con­firm Janet Yel­len as the next chair of the Fed­er­al Re­serve, el­ev­at­ing her to ar­gu­ably the most power­ful wo­man in Wash­ing­ton. It won’t be an easy job.

In ad­di­tion to over­see­ing the un­wind­ing of the cent­ral bank’s bond-buy­ing pro­gram and likely its first in­terest-rate hike since Decem­ber 2008, Yel­len will in­her­it the Fed chair­man’s twice-yearly grilling by mem­bers of Con­gress. The Fed chief is re­quired by law to provide semi­an­nu­al up­dates on mon­et­ary policy to the Sen­ate Bank­ing and House Fin­an­cial Ser­vices com­mit­tees.

It won’t al­ways be pleas­ant, but Yel­len’s job might be slightly easi­er than that of her pre­de­cessor, Ben Bernanke. Not only is the eco­nomy slowly im­prov­ing but the Fed is also eas­ing off a bond-buy­ing pro­gram known as “quant­it­at­ive eas­ing” that has drawn cri­ti­cism from a num­ber of con­gres­sion­al Re­pub­lic­ans, who say it could have un­in­ten­ded neg­at­ive con­sequences for the eco­nomy.

“There’s al­ways a ten­sion between the Fed and the Con­gress, which is sort of a right­ful ten­sion, but I don’t think it’s go­ing to be as in­tense,” said Stu­art Hoff­man, chief eco­nom­ist at the PNC Fin­an­cial Ser­vices Group.

From Con­gress’s per­spect­ive, the Fed is trudging to­ward more nor­mal policies, which should please the vo­cal crit­ics on the right, even as it may draw fresh cri­ti­cism from Demo­crats who think the cent­ral bank is back­ing off its sup­port for the fledgling re­cov­ery too soon. From the Fed’s point of view, Con­gress just de­livered more fisc­al cer­tainty — something Bernanke of­ten urged it to do — with the pas­sage of a mod­est two-year budget agree­ment last month.

But even though the Fed an­nounced it would cut the total num­ber of monthly as­set pur­chases by $10 bil­lion to $75 bil­lion in Decem­ber, the cent­ral bank will still be grow­ing its bal­ance sheet, which crit­ics say could cause fin­an­cial in­stabil­ity, through the bond-buy­ing pro­gram in 2014. “I don’t think the pres­sure lessens up. I just think it changes a little bit the nature of the Re­pub­lic­an cri­ti­cism,” said Sarah Bind­er, a Con­gress ex­pert at the Brook­ings In­sti­tu­tion.

Some of the more polit­ic­ally con­ten­tious as­pects of the Fed are, in ad­di­tion to quant­it­at­ive eas­ing, its work as a fin­an­cial reg­u­lat­or and its trans­par­ency. A bill that would open up the cent­ral bank’s mon­et­ary-policy de­cisions to con­gres­sion­al scru­tiny has been the most prom­in­ent ef­fort in re­cent years to change the Fed; it passed the House in 2012 but has so far failed to ad­vance in the Sen­ate.

“I would be very con­cerned about le­gis­la­tion that would sub­ject the Fed­er­al Re­serve to short-term polit­ic­al pres­sures that could in­ter­fere with [its] in­de­pend­ence,” Yel­len said at her con­firm­a­tion hear­ing, echo­ing con­cerns that Bernanke raised dur­ing his ten­ure.

She may be forced, like Bernanke, to de­fend her po­s­i­tion again.

The House Fin­an­cial Ser­vices Com­mit­tee an­nounced last month that it would spend 2014 ex­amin­ing the Fed’s mis­sion through a series of hear­ings and is pre­pared to mark up le­gis­la­tion to re­form the Fed later next year. The first of 2014, sched­uled for Thursday, will fo­cus on the in­ter­na­tion­al im­pacts of the Fed’s bond-buy­ing pro­gram.

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