Lawmakers unloaded their anxiety about the state of the economy to Federal Reserve Chairwoman Janet Yellen Wednesday as voter discontent with Washington hit home.
One day after New Hampshire handed primary victories to Donald TrumpDonald TrumpFederal judge extends order blocking Trump's revised travel ban Texas Dem targets Sen. Ted Cruz in 2018 Budowsky: Putin’s KGB super PAC MORE and Bernie SandersBernie Sanders'Morning Joe' co-host: We got into Trump's head Petition calls for Melania Trump to move to White House or pay NY security costs In California race, social justice wing of Democrats finally comes of age MORE, several members of the House Financial Services Committee appeared to channel voters’ frustrations.
The atmosphere in the hearing room created a challenge for Yellen, who sought to make the case that the Fed made the right call in hiking rates for the first time in years at its December meeting. That move was intended to lay the groundwork for additional rate hikes.
“We have an economy that has now made substantial progress,” Yellen said. “We took one small step to raise short-term interest rates but continue to have accommodative monetary policy. … It’s not that we’re trying to reverse progress.”
Some lawmakers were quick to note gains the economy has made since the financial crisis, with the unemployment rate dipping below 5 percent in January for the first time in eight years.
But with a huge chunk of the public apparently unhappy with their economic lot, lawmakers were in no mood to celebrate.
Republicans, long critical of policies out of the Fed and the Obama administration, have repeatedly noted the shortcomings of the recovery.
“The reality is that this recovery is the most dismal, tepid recovery we’ve ever had from a recession,” said Rep. Robert Pittenger (R-N.C.).
Democrats, who usually are allies of Yellen’s Fed, criticized aspects of the recovery as well. With the Fed tightening policy for the first time in nearly a decade, it was their turn to air anxiety over the prospect of a short-circuited recovery before many Americans have regained work or seen their paychecks grow.
If the pressure from lawmakers weren’t enough, Yellen was flanked by low-wage and community protestors seated in the hearing room who are critical of the Fed’s rate hike and pushing for more action to boost the economy.
Yellen testified a day after Trump and Sanders rode a wave of voter dissatisfaction with Washington and Wall Street to win resounding victories in their respective presidential primaries.
Exit polling found 79 percent of Democrats in New Hampshire were worried about the direction of the economy, alongside a stunning 93 percent of GOP primary voters.
Lawmakers sought to tap into that dissatisfaction Wednesday, pressing Yellen on the lack of prosecutions for misbehaving bank executives and the prospect of smaller banks being buried in federal red tape.
Some members are particularly upset with how minority groups have fared in the recovery. Those lawmakers noted that the jobless rate for non-whites is significantly higher than their white counterparts and wondered if the Fed could do more.
“This is something I do think needs the attention of the chair,” said Rep. Keith Ellison (D-Minn.). “Race matters when it comes to how people experience our economy.”
Rep. David Scott (D-Ga.) noted that the Fed has zero minorities leading its regional banks and argued policymakers would be taking the matter much more seriously if white unemployment was at a similarly high level as black joblessness.
“We’re not even part of the conversation,” he said.
Yellen also had to play defense over the Fed’s procedure for raising interest rates. After announcing a rate hike, the Fed carries out the policy by paying banks interest on their excess reserves. By paying banks interest to not lend, the central bank is able to drive up overall borrowing costs toward its target.
But Yellen was pressed by both Chairman Jeb Hensarling
(R-Texas) and Rep. Maxine Waters (D-Calif.), the top Democrat on the panel, about the policy. Both noted that it seemed as if big banks were receiving a risk-free subsidy, even though Congress passed a 2006 law giving the Fed the power to make those payments.
Yellen defended the policy, arguing that alternative methods could “prove very disruptive to the expansion.”
“It’s an essential tool that we need,” she said.
Before lawmakers had their say, Yellen struck a cautiously optimistic tone on the economy.
In her opening testimony, she noted that recent stock market drama was weighing on economic prospects. But at the same time, the labor market and economy show signs of continued growth.
She also cautioned that the Fed is in no rush to raise rates and said the bank will move very judiciously on that front.
“The [Federal Open Market Committee] anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” she said. “In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”
This story was updated at 6:40 p.m.