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14 Nov 2013
North America Economic Research
This ain't her first rodeo

 
 
Janet Yellen's Senate confirmation hearing for Fed Chair went smoothly today. She did not appear to tailor her message to the audience, but rather sounded like she usually does -- methodically laying out the case for the Fed's recent stimulative measures. As a seasoned central banker, it should probably come as no surprise that Yellen was studiously ambiguous in her comments about when tapering would begin. Yellen noted there are dangers of ending asset purchases too soon, and of keeping them going too long. In thinking about this decision she indicated that "there is no set time that we will decide to reduce the pace of our purchases, at each meeting we're attempting to assess whether or not the outlook is meeting the criterion that we've set out to begin the reduce the pace of purchases."
 
When asked about asset prices and financial stability, Yellen offered that "I would not rule out monetary policy conceivably having to play a role" in addressing this concern -- a sentiment echoing her prepared remarks as well as Bernanke's remarks in July at the NBER -- but also stated that "I don't see evidence at this point in major sectors of asset price misalignment." A remark about IOER generated some interest, though there are three things to keep in mind. First, it was in response to a question from Senator Warner on this topic. Second, Warner's reasoning for advocating an IOER cut -- so that banks would "lend out" reserves -- is at odds with mainstream reasoning at the Fed. Third, in her response Yellen reiterated the concern about financial market functioning that had led the Fed to eschew this option. In sum, we do not see an IOER cut coming back into play as an option for Fed policy. Yellen had little to say about forward guidance, though we view this as a function of the question-and-answer format, and the Senators having less interest in forward guidance than in asset purchases.
 
A few months ago when the Summers-Yellen debate was raging, Yellen was seen as the continuity candidate: more predictable and less disruptive. She lived up to that perception today. If one only read the transcript but didn't watch the hearing, one would be hard-pressed to distinguish Yellen from Bernanke.


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