Will Janet Yellen follow the Bernanke plan?
By Mitchell Hartman
Federal Reserve Chair Janet Yellen appears before Congress on Tuesday before the House Financial Services Committee, her first regular visit since succeeding Ben Bernanke. A Fed chair’s testimony — and responses to members of Congress — are always scrutinized. This time, if anything, the scrutiny will be heightened: Not only is Yellen new to the leadership role, there has been increased turmoil in global financial markets of late. Stocks have been volatile after a big selloff in recent weeks. Emerging markets are being dumped on by investors as their curriencies experience volatility; countries with weak trade balance numbers are being pressured to raise the interest rates they offer on government debt, in part to compete with higher rates anticipated for U.S. Treasuries. This global fluctuation of interest rates is partly due to the Federal Reserve winding down its extraordinary fiscal stimulus policy known as quantitative easing. The Fed has been buying tens of billions of dollars worth of bonds each month to keep interest rates low and encourage more investment and consumption in the U.S. Meanwhile, a significant bloc in Congress—and one that crosses party lines—is pushing legislation to limit the Fed’s wide powers over the economy and the financial sector. Karen Petrou, managing partner at Federal Financial Analytics in Washington, D.C., says those lawmakers won’t hesitate to grill Yellen on what they perceive as the Fed’s overreaching regulation and over-intervention in the economy, independent of the will of the legislative branch. That aggressive stance on the Fed’s leadership role originates with Ben Bernanke and his efforts to stabilize markets during the financial crisis, and Yellen also strongly backs the policy.