Fresh off the Federal Reserve’s announcement this week that it wouldn’t raise interest rates, Chairwoman Janet Yellen is headed to Capitol Hill to testify before the Senate Tuesday and House Wednesday, it was announced Thursday.
Yellen always faces tough questions on Capitol Hill. With the Fed’s massive responsibilities, she can always expect a wide range of tricky or even hostile inquiries. Here’s what is likely to be at the top of the list:
When will rates rise?
A question, or several, about the next rate hike is unavoidable. After the Fed held off on raising its short-term interest rate target this week, investors are left wondering when the central bank’s monetary policy committee might act. Many members of Congress, especially Republicans, have expressed concern that the Fed has kept rates ultra-low even for so long.
Why won’t the Fed explain itself?
House Republicans, sick of the never-ending speculation about the timing of Fed rate decisions, want the Fed to give more predictable guidance about how it will conduct monetary policy. They have introduced legislation that would require the Fed to set out a rule for adjusting interest rates and provide an explanation any time it deviated from the rule, and are now including that bill as part of their proposed alternative to the 2010 Dodd-Frank financial reform law. Given the ongoing “will they/won’t they” drama surrounding each Fed meeting, members are likely to press Yellen on this one.
Debt ceiling shenanigans
Republicans have accused the Federal Reserve System of being involved in an attempt by the Obama administration to deceive Congress about the stakes in the debt ceiling standoff between the White House and Republicans. Republicans haven’t received the answers they would like from the Fed — or scored all the political points they’d like to.
Fed payments to banks
Republicans and Democrats alike have raised concerns about the Fed’s plans to conduct monetary policy by, effectively, paying banks not to lend. More recently, however, Democrats have softened their criticism about the idea.
Monetary policy leak
House Republicans still aren’t satisfied with the Fed’s cooperation in investigating a leak regarding the central bank’s monetary policy plans in 2012.
Living wills leak
And now Yellen has another leak to worry about: The inspectors general for the Fed and the Federal Deposit Insurance Corporation are looking into the source of a leak about the big banks’ “living wills” to the Wall Street Journal in April.
Politics
The Fed is supposed to be an independent central bank, but politics always creeps into discussions about it.
With the 2016 elections just months away, members of Congress are likely to ask how the Fed will regard the race. For their part, Fed officials say that they are not affected by politics, and Yellen said Wednesday in her press conference that the Fed “will feel free to move in the coming months if we think it’s appropriate,” regardless of what’s happening on the campaign trail.
Yet Republicans have criticized Yellen in the past for speaking out on inequality before the 2014 midterms, a topic they thought gave an advantage to Democrats.
And, partisan questions aside, Fed members do incorporate the economic implications of political events into their decision-making. Yellen acknowledged this week that the upcoming “Brexit” referendum in the United Kingdom, and the associated financial market risks, were a factor in the Fed staying put.
