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Janet Yellen doesn’t see any bubbles—or a taper any time soon: Erica Alini

She is a dove, and she’s not apologizing for it

Janet Yellen, vice chair of the Board of Governors. (Source/AP) Photo/Getty /Eugene Hoshiko)

Janet Yellen, vice chair of the Board of Governors. (Photo/Getty /Eugene Hoshiko)

One thing was very clear in Janet Yellen’s first Congressional testimony as Federal Reserve chair nominee: She will not apologize for what she really thinks. If you expected the prospective head of the U.S. central bank to put the emphasis on keeping inflation in check in an attempt to assuage the monetary policy hawks in the Senate, you were very wrong. Yellen’s focus was squarely on unemployment and the still “disappointing” pace of the recovery. She defended the Fed’s stimulus program fiercely — if, at times, verbosely — and did not budge under pressure.

Here are the main takeaways from the hearing:


Yellen did not seem to be in a hurry to dial-back quantitative easing (QE), the Fed’s $85 billion-a-month bond buying program. With 36% of the unemployed out of a job for six months or more, “I consider it imperative that we do continue our asset purchase program,” she said. “At this point I believe the benefits [of QE] exceed the costs,” she added. But she did make clear — in case anyone had any doubt — that the money-printing cannot go on forever. “It’s important we do reduce accommodation when the time comes,” she noted. The time, though, does not seem to have come yet.

Housing, the stock market and asset bubbles

Yellen dismissed concerns that the Fed’s easy-money policy has inflated housing and stock bubbles. “I don’t see evidence of asset-price misalignments of a level that would threaten financial stability,” she told her audience of lawmakers. She described the recent investor rush to snap up homes to rent with cash purchases as “a rational reaction of the market.” She did, however, say that the Fed has a duty to prick dangerous-looking bubbles whenever it spots them.

The Volcker Rule

Among the many questions she received on regulating the banks, there were a couple on the so-called Volcker Rule, a provision of the Dodd-Frank financial overhaul bill of 2010 that would prohibit banks from making bets with their customers’ money for a profit. The rule is very unpopular — to put it mildly — in Canada because, as it is currently designed, it would impose onerous restrictions on our banks as well. Yellen endorsed the principle behind the Volcker Rule, but added that “the devil is in the detail” when it comes to devising regulations that will actually work. Yellen’s putative attention to detail on the matter could give hope to Canadian bankers who want an amendment to the provisions that cause problems for foreign banks.

Too big to fail

With all the characteristic caveats and precautions, Yellen did tell lawmakers she believes the current setup of America’s financial markets provides subsidies to banks and other institutions considered too-big-to-fail. The system, she said, keeps their borrowing costs artificially low. “Addressing too-big-to-fail has to be one of the most important goals of the post-crisis period,” she said. Though financial regulation isn’t exactly Yellen’s bread and butter — her strengths are in monetary policy proper — she did seem to take the issue very seriously. She also appeared open to a suggestion by Massachusetts Senator Elizabeth Warren to institute regular meetings of the Federal Reserve’s Board to discuss financial stability questions.

For a guide to what happens next in the nomination process, see here.