Yellen to Congress: Leave the Fed alone

Yellen to Congress: Leave the Fed alone
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Federal Reserve Chairwoman Janet Yellen on Tuesday swatted down suggestions from both sides of the aisle that it’s time for the central bank to change how it does business.

Appearing before the Senate Banking Committee, Yellen was on the defensive, as Republicans questioned how the Fed conducts monetary policy and Democrats put forward ideas for getting tougher on Wall Street.

In the midst of all of it, Yellen generally argued the Fed was designed as an independent entity for a reason — and it would be best not to change it.

“Central bank independence in conducting monetary policy is considered a best practice for central banks around the world,” she said. “Academic studies, I think, establish beyond the shadow of a doubt that independent central banks perform better.”


The biggest challenge to the Fed’s structure is the growing movement to Audit the Fed via legislation from Sen. Rand PaulRandal (Rand) Howard PaulThe Hill's Morning Report - Presented by Tax March - CDC in limbo on J&J vax verdict; Rep. Brady retiring Anti-Asian hate crimes bill overcomes first Senate hurdle Fauci on Tucker Carlson vaccine comments: 'Typical crazy conspiracy theory' MORE (R-Ky.) that would subject the central bank's monetary policy decisions to external review.

A GOP-controlled Congress has given the bill its best chances yet of passage, and that renewed interest led Yellen to deliver her most spirited opposition yet.

“I want to be completely clear,” she said. “I strongly oppose Audit the Fed.”

Yellen argued the audit measure would allow politicians to second-guess the Fed’s decisions, which, in turn, would weaken the central bank. And the ultimate victim of that process, she said, would be the U.S. economy.

The Fed chairwoman went so far as to wave a thick report before lawmakers as a way to highlight that most of the Fed's operations are already subject to outside audit.

There were signs Tuesday that the audit bill might have trouble making it through the Senate, even though the House has passed similar legislation twice.

Sen. Bob CorkerRobert (Bob) Phillips CorkerFox News inks contributor deal with former Democratic House member Senate GOP faces retirement brain drain Roy Blunt won't run for Senate seat in 2022 MORE (R-Tenn.) criticized the bill, calling it “an attempt to allow Congress to be able to put pressure on Fed members.”

“That would not be a particularly good idea, and it would cause us to put off tough decisions for the future,” he added.

If another GOP member of the Banking Committee joined Corker in opposing the bill, the measure would not be able to clear committee, assuming Democrats are united in opposing it.

That seems likely, as even liberal lawmakers critical of the Fed, including Sen. Elizabeth WarrenElizabeth WarrenDemocrats reintroduce bill to block US from using nuclear weapons first CEO who gave employees K minimum wage says revenue tripled 6 years later Forgiving K in school loans would free 36 million student borrowers from debt: data MORE (D-Mass.), have said they oppose the audit bill.

But even if the audit push is stalling, lawmakers have plenty of other ideas for how the Fed’s operations could be changed.

To open the hearing, committee Chairman Richard Shelby (R-Ala.) ran four different reform ideas past Yellen.

He suggested another way for the Fed to monitor inflation. Yellen says inflation remains low, giving it a reason not to hike interest rates yet.

“I don’t think it would make a lot of sense,” she said of the idea.

Shelby then wondered whether the Fed should establish an explicit rule to guide its monetary policy.

Yellen said that would amount to “chaining” the Fed down in setting the policy.

He also suggested rotating the vice chairmanship of the Fed, which is now permanently based at the New York bank.

Yellen said the current structure has “worked very well,” and New York is home to a unique number of experts fit for the job.

When Shelby asked if the Fed’s 12 districts could be consolidated to five, the Fed chairwoman said Congress set up the map a century ago and probably had good reason for doing so.

Despite Yellen’s protests, Shelby’s panel is likely to take up legislation that would rework the central bank. The chairman opened the hearing by saying there is more of a need now than ever for closer scrutiny by lawmakers.

“The role of Congress is not to serve on the Federal Open Market Committee. But, it is to provide strong oversight and, when times demand it, bring about structural reforms,” Shelby said.

One day before Yellen testified, the Alabama Republican announced that the panel would hold a March 3 hearing on reforming the Fed.

Yellen also has to navigate challenges from Democrats who want to see the bank operate differently.

Sen. Jack ReedJack ReedBiden sparks bipartisan backlash on Afghanistan withdrawal  Overnight Defense: Biden nominating first female Army secretary | Israel gets tough on Iran amid nuclear talks | Army's top enlisted soldier 'very proud' of officer pepper sprayed by police On The Money: CDC extends coronavirus eviction ban through June 30 | Biden to detail infrastructure proposal Wednesday | US won't quickly lift Trump tariffs on China MORE (D-R.I.) recently introduced a bill that would require the Senate to confirm the head of the New York Fed, which plays a central role in overseeing the nation’s largest financial institutions.

And Sen. Elizabeth Warren (D-Mass.) pushed Yellen on whether members of her staff — particularly General Counsel Scott Alvarez — are truly committed to implementing tough rules for the financial sector.

Warren highlighted some comments from Alvarez criticizing some provisions of the Dodd-Frank financial reform law and pushed Yellen to tighten the ship.

“The Fed’s general counsel or anyone at the Fed’s staff should not be picking and choosing which rules to enforce based on their personal views,” Warren said. “I urge you to carefully review this issue and to assess whether the leadership of the Fed’s staff is on the same page as the Federal Reserve Board.”

— Last updated at 2:35 p.m.