Don’t expect any revelations about rising interest rates Wednesday, but you should still tune in to Janet Yellen’s appearance before Congress on Wednesday and Thursday. Especially to the Q&A.
The Fed’s relationship with Congress has been strained lately, and tensions are likely to be high during the mandatory semi-annual testimony. “The Fed is in dangerous territory,” says Bob Brinker, editor of Brinker Fixed Income Advi$or. The central bank holds a lot of power and Congress is itching to take some of that decision making authority away. Brinker recommends watching for a Congressional push for more oversight of the Fed, something that could teeter on a dangerous politicization of monetary policy.
Tension between the two bodies “is important if it leads to restructuring of the institution or sends signals that prevents the Federal Reserve from acting in the future,” says Tim Duy, economist at the University of Oregon. The public is feeling disenchanted with the central bank for its role in allowing the economy to overheat before the Great Recession. Then the Fed appears to have been stonewalling Congress in its investigation of a leak.
“The strained relationship of late between Congress and the Federal Reserve points to the importance of maintaining these lines of communications,” adds Duy, saying that such testimony forces more transparency from the Fed.
Former U.S. budget director David Stockman has suggested that the semi-annual Humphrey-Hawkins testimony is a relic of the past. The Fes is not nearly as powerful as it once was: Globalization has dampened the central bank’s influence.
Brinker says the testimony still matters. A lot. “It is the only real public accountability” of the Fed, he says. Answering questions for Congress forces the Fed to speak in plain English, to come down from its ivory tower and speak to the people. Congressional representatives ask different kinds of questions from an academic or even a journalist, says Brinker. Forcing Yellen to discuss interest rates in a simplified way is beneficial for everyone.
She’s inevitably going to be forced to explain more completely her economic positions and thoughts about interest rates, says Duy.
Jeff Miller, economy blogger, isn’t so concerned. Yellen’s testimony will likely be a simple reiteration of her comments last week. She’s been vocal enough about her stance on rates and the economy that the testimony will be pretty bland, Miller writes.
Photo: Brookings Institute.