Yellen urges Congress to be wary of Fed reforms

Francis Rivera

Federal Reserve Chairwoman Janet Yellen urged lawmakers to tread lightly when it comes to overhauling the central bank, warning that proposed changes could undermine its ability to support the economy.

In prepared testimony, Yellen will tout the Fed’s own efforts to boost its transparency as a way to discourage lawmakers from pushing their own proposals to bring the Fed under stricter oversight.

{mosads}“Efforts to further increase transparency, no matter how well intentioned, must avoid unintended consequences that could undermine the Federal Reserve’s ability to make policy in the long-run best interest of American families and businesses,” she said.

Yellen’s testimony Wednesday before the House Financial Services Committee will come one day after that panel held a hearing in which Republicans blasted the Fed as being unaccountable.

While Yellen will argue in her testimony that Fed tweaks could subject the central bank to political pressure and make it less effective, GOP lawmakers have argued the Fed holds up its political independence as a way to avoid scrutiny.

“The Fed’s clamor for independence is its underpinning for circumventing any sort of congressional accountability,” said Rep. Sean Duffy (R-Wis.) on Tuesday.

The relationship between the Fed and Republicans has been touchy ever since the Fed embarked on an unprecedented run of monetary stimulus following the recession. But the dynamic took a turn for the worse recently, as the Fed has refused to comply with demands for documents lawmakers seek in conjunction with a probe into a 2012 leak of sensitive Fed information.

The Financial Services panel went so far as to issue subpoenas for some documents, at which point the Fed refused to provide them, citing an ongoing criminal probe into the matter by the Department of Justice.

Lawmakers have pushed a number of ideas to overhaul the Fed, from reworking its structure, requiring additional top-ranking Fed spots to be confirmed by the Senate or even requiring the Fed to set monetary policy based on an explicit rule.

Yellen has pushed back against all those ideas, arguing that the Fed has been set up the way it has for particular reasons and changes could render it less effective at a critical juncture.

Elsewhere in her testimony, Yellen reiterated that if the economy continues to improve as expected, the Fed will “likely” raise rates sometime later this year for the first time since the financial crisis.

However, that prediction came with the usual caveats, as she said the Fed would be watching all incoming information closely to better inform that decision. In particular, she singled out foreign trouble as a potential pitfall, as China has seen its stock market enter a tumultuous phase, while Greece struggles to pay off its debt.

Back home, Yellen said the U.S. economy appears to be positioned to improve further in the months ahead, after a disappointing first quarter that saw no economic growth. As she had in the past, Yellen said those weak first quarter numbers were caused by some temporary factors that should not be an issue going forward, like harsh winter weather and a labor dispute that halted ports along the West Coast.

Tags Federal Reserve System Janet Yellen

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