As she steps before the Senate Banking Committee on Thursday for her nomination hearing to become Federal Reserve Board chairwoman — the central bank’s first — Janet Yellen will start a journey that could deposit her in rarefied territory.
If confirmed by the Senate as expected, Yellen would head an agency with broad authority to set monetary policy for the United States and almost total independence. Her words will move markets around the globe. Her term will outlast that of the president who nominated her.
Yellen will arguably be the most powerful woman in Washington. Chart: Dual Challenges for Incoming Fed Chief
“It’s just so exciting to see another barrier come down or another glass ceiling broken,” said Joyce Jacobsen, an economics professor and dean of social sciences at Wesleyan University who helped organize a letter in support of Yellen’s candidacy this September. “This is another first, just like when we had the first woman on the Supreme Court.”
Although Yellen has had many chances to make her views on the economy known — she has given 22 speeches since her appointment as vice chairwoman in 2010 — the grilling that accompanies this type of nomination may be a first. She fielded just 10 questions when she faced the Senate Banking Committee for consideration as Ben Bernanke’s deputy in July of 2010. When Bernanke had his first nomination hearing in 2005, he received roughly 102.
In her opening statement, Yellen will pledge to maintain the Federal Reserve’s focus on financial stability, according to prepared testimony released by the central bank on Wednesday.
“I am committed to using the Fed’s supervisory and regulatory role to reduce the threat of another financial crisis,” she says, adding that while capital and liquidity rules and strong supervision may help tackle the “too big to fail” problem, she will try not to overburden community banks and small institutions in the process.
Yellen will also say she plans to continue Bernanke’s work to open up the Fed and better communicate its decisions to the public. She will cite her work in developing an explicit 2 percent inflation target, which the Fed announced for the first time in 2012.
Of course, lawmakers will have questions. They are likely to focus on Yellen’s assessment of the economic outlook and what it means for the Fed’s bond-buying program, which is currently proceeding at a pace of $85 billion a month and is intended to bring down interest rates and spur growth. Another likely query will focus on the central bank’s plans to keep its benchmark interest rate near zero — where it has been since December 2008 — going forward.
Some Republicans have expressed concern that focusing too much on bringing down the nation’s 7.3 percent unemployment rate through stimulus measures could set the economy up for a nasty inflation spike, although economic data have not yet suggested this is on the horizon. Democrats may ask Yellen why the bank hasn’t been more successful in lowering the unemployment rate, which remains more than 2 percentage points above its precrisis levels.
There are also potential questions about other dangers on the horizon: asset bubbles, financial shocks, and deflation. Yellen will be expected to articulate how the central bank would handle these and other potential challenges. She’s also likely to field questions on financial regulation and the Fed’s progress in writing rules under the 2010 Dodd-Frank financial-reform law, 60 percent of which still need to completed by regulators, according to law firm Davis Polk & Wardwell.
One particularly contentious piece, the “Volcker Rule,” which would ban banks from making speculative bets with their own money, is expected to be finalized soon and could be a particular area of focus for lawmakers.
If Yellen is confirmed, she will be the first female Federal Reserve chief, even though the world of central banking will remain dominated by men. The first female governor to join the central bank was Nancy Teeters in 1978, and even now only two of the six current Fed governors, a count that includes Yellen, are women.
Yet the idea that she would be the most powerful woman in Washington is hardly an exaggeration. Lawmakers gave the Fed a dual mandate in 1977 to preserve price stability while pursuing maximum employment, but it’s up to the central bank to chart the course to achieve those aims, and it does so with very little interference.
The Fed chief has to testify before Congress twice a year, but that’s about it. The Fed isn’t subject to the congressional appropriations process, nor does the White House comment on its policies. It would take legislation — unlikely to pass through this Congress — to curb the bank’s independence.
Yellen is not expected to have difficulty being confirmed on her credentials. But several Republican lawmakers, including Sens. Rand Paul of Kentucky, Ted Cruz of Texas, and Lindsey Graham of South Carolina, have said they will place a hold on her nomination for other reasons.
Paul and Cruz want a vote on legislation to audit the Federal Reserve, and Graham wants to get answers on the 2012 attack on the U.S. diplomatic mission in Benghazi. Despite these plans, analysts at the Eurasia Group, a political risk consultancy, said last week they didn’t expect Yellen to have any trouble getting the 60 votes needed to overcome these procedural hurdles or the 51 needed for confirmation.
“I think [the hearing is] going to be entertaining, but I don’t think there’s going to be any indication that she’s in any danger,” said Corey Boles, a senior analyst at the Eurasia Group.