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Federal Reserve Vice Chair Janet Yellen will face the confirmation hearing for her nomination as Ben Bernanke’s replacement as Fed chair on Thursday at 10 a.m. Senators of both parties expect Yellen to be confirmed to take over when Bernanke steps down on Jan. 31, 2014.
Yellen can expect to face questions about the cost and benefits of the Fed’s bond-buying program – quantitative easing, or QE – and where she stands on the tapering debate. Today’s testimony represents her first public remarks on Fed policy since June 2.
The hearing will be broadcast live on C-SPAN3.
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Update 12:21 a.m.: And that’s a wrap for today. Thanks for following along.
Update 12:20 a.m.: Societe Generale's Aneta Markowska writes in a freshly published note:
Following the Fed papers presented at the IMF conference, and reinforced by Yellen’s comments about QE at today’s confirmation hearing, we now believe that the Fed will significantly change the policy mix next year by moving away from QE in favor of stronger forward guidance. This will most likely be done by lowering the unemployment rate threshold to 6.0 percent, which pushes our expected liftoff in the Fed Funds Rate to the first half of 2016.
The two Fed studies presented at the annual research conference of the IMF on Nov.7-8:
1. The Federal Reserve’s Framework for Monetary Policy—Recent Changes and New Questions, by William English, director of the Division of Monetary Affairs, along with David Lopez-Salido and Robert Tetlow. The paper makes the case for lowering the Fed’s 6.5 percent unemployment threshold.
2. Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy, by David Wilcox, director of the Division of Research and Statistics, along with David Reifschneider and William Wascher. This second study warns that high unemployment can become embedded in the economy through a process called “hysteresis.”
Update 12:16 a.m.: "Your Brooklyn wisdom shines through," said Sen. Charles Schumer, the Democrat from New York. And with that, the hearing is adjourned.
Update 12:04 a.m.: Yellen gets big vote of confidence from former Fed Chairman Alan Greenspan, who is speaking right now at a forum sponsored by the Atlantic and the Aspen Institute.
Greenspan on Yellen: "She's got the tools to do as good a job as anybody I know"
â€” Rob Schroeder (@mktwrobs) November 14, 2013
“I forecast she’ll get confirmed,” Greenspan said.
Update 11:35 a.m.: Yellen on the rock-bottom interest rate: We can’t have normal rates unless the economy is normal.
Update 11:29 a.m.: Best quote so far --
When asked if the Fed was afraid to taper because the market might swoon：
"The Fed can't be or shouldn't be a prisoner of the markets." - Yellen
— Pedro da Costa (@pdacosta) November 14, 2013
Update 11:23 a.m.: Senator Bob Corker, a Republican from Tennessee, points out that Yellen voted for interest rate hikes 27 times during her Fed tenure and never voted against one.
Update 11:18 a.m.: Slight gains in the stock markets.
Update 11:07 a.m.: Here’s the link to the GAO report on bank too-big-to-fail subsidies that Sen. David Vitter mentioned earlier.
Update 10:59 a.m.: Apparently, Yellen did her homework and come well prepared, as she always has been.
Update 10:54 a.m.: Yellen’s hearing now turns to bank regulation. In an exchange with Senator Sherrod Brown, an Ohio Democrat, Yellen says “too big to fail is damaging, creates moral hazard … and unfairly advantages to large banking firms over small ones.” Yellen then adds that “we are making progress.”
Update 10:40 a.m.: Looks like Yellen just gave Republican Senator Shelby, a critic of the Fed, an Econ 101 lession.
Update 10:27 a.m.: The top Republican, Sen. Mike Crapo, is pushing Yellen for an answer: Can the QE continue indefinitely?
Yellen: The progress of QE is data dependent. But I agree that this program cannot go on forever. We have seen meaningful progress in the labor market, and what the committee is looking for is signs that the economy is strong enough to sustain these improvements.
While there is no set time, Yellen says the FOMC will assess the strength of the economy at each meeting and decide whether it’s time to taper.
Update 10:25 a.m.: Yellen on Fed's $85-billion-a-month in bond buying: "At this point, I believe that the costs exceed the benefits."
Update 10:21 a.m.: The first question in the Q&A session is a softball from Sen. Tim Johnson on what Yellen thinks the Fed can do to improve the labor market condition and the economy. Yellen: "I consider it imperative that we do what we can to promote a strong recovery."
Update 10:10 a.m.: Yellen introduced her guests -- her husband, economist George Akerlof, her sister-in-law and Karla Chambers, a former San Francisco Fed director.
Update 09:57 a.m.: The text of Yellen’s testimony was published ahead of time. But her opening remarks contain few surprises.
Most evident is her view that accommodative policy remains necessary. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," Yellen writes, adding that “at 7.3 percent in October, [the unemployment rate] is still too high, reflecting a labor market and economy performing far short of their potential.”
This is a dovish statement, but one consistent with views she has expressed for some time.
Otherwise, the testimony briefly addresses the Fed’s efforts to enhance transparency and its supervisory and regulatory role. On the former, Yellen writes “I have strongly supported this commitment to openness and transparency, and will continue to do so.” On the latter she adds, “the Federal Reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy.”