Federal Reserve Chairwoman Janet Yellen will appear before the House Financial Services Committee Wednesday, sure to face tough questions from Republican lawmakers.
While Yellen is required by law to testify before Congress four times a year, Wednesday’s appearance is different. She is testifying in her role as the top regulatory official at the central bank, not to deliver a report on monetary policy.
The Fed is supposed to have a vice chairman for oversight who testifies on regulatory affairs, but President Obama has not nominated anyone for that position since it was created by the 2010 Dodd-Frank law. In the absence of an official vice chairman, Yellen will testify.
Her appearance comes at a moment of intensified scrutiny for the central bank, as it approaches a decision about tightening monetary policy and as Congress debates changes to financial laws. Here are some of the questions she can expect:
1. Will the Fed raise interest rates soon?
Members of Congress usually ignore monetary policy and instead ask about rules and regulations that affect their constituents, or try to get Yellen to weigh in on the legislation of the day.
This time, however, Yellen can expect questions about the Fed’s monetary policy plans.
Over the next six weeks before the Fed’s December meeting, there will be widespread speculation about whether the Fed will raise interest rates from zero for the first time since the financial crisis.
Investors will be watching Wednesday’s hearing closely for anything Yellen might say about what she’s thinking. In particular, the Fed has had said that it’s looking for signs that inflation will rise to its 2 percent target before it raises rates. Yellen could clarify whether last week’s data showing inflation at just 0.2 percent in the index the Fed uses means that the central bank is getting further from a rate hike.
2. How big is a big bank?
Congress is wrestling with the definition of a big bank. On Tuesday, a House panel pushed legislation that would lift strict regulations on some regional banks. Many members of Congress want to ease the burden of regulation on banks such as Dallas-based Comerica Bank or San Francisco-based First Republic Bank, which have more than the $50 billion in assets that qualifies them for added regulation under the 2010 Dodd-Frank. Those banks are larger than the typical community bank, but also much smaller than the Wall Street megabanks.
Members of the Fed have suggested that the cutoff defining big banks could be raised. Yellen likely will be pressed on that point.
3. Her role in the council of regulators
Lawmakers also are likely to quiz Yellen about what she does as a member of the Financial Stability Oversight Council, the super-group of regulators created by Dodd-Frank to find threats to the financial system that might otherwise escape the individual regulatory agencies.
Republicans have criticized the council as unaccountable and nontransparent, and they are seeking to advance legislation that would change its structure. One of the complaints they have voiced is that the council includes only the heads of regulatory agencies, who are Obama appointees, and not other members of the agencies.
4. The leak investigation
Yellen is embroiled in a long-running, slow-moving, but potentially major controversy surrounding a 2012 leak of monetary policy deliberations.
Questions about the leak, which occurred on her predecessor Ben Bernanke’s watch as chairman, have brought Yellen into conflict with members of the House Financial Services Committee responsible for oversight of the Fed.
The leak and the Fed’s handling of it, are under investigation by the Fed’s inspector general and the Justice Department. Republicans on the House panel have accused Yellen of obstructing them from carrying out the committee’s oversight related to the leak, and they have subpoenaed the Fed for documents related to the panel’s inquiry.
The Fed turned over documents to the panel in October, Bloomberg reported on Tuesday.
The 2012 incident involved a financial research firm obtaining confidential information from a closed Fed meeting about the central bank’s plans for a massive bond-buying program. Such information can move global markets.
5. Is Dodd-Frank hurting the economy?
Republicans have argued repeatedly that Dodd-Frank hurts the economy by imposing overly burdensome rules on banks, especially community banks, and in doing so raises the costs of borrowing for businesses and consumers.
Yellen has defended Dodd-Frank whenever she is in front of Congress. But the stakes are higher now, with Democrats on alert for Republicans trying to move legislation rolling back Dodd-Frank provisions as part of government funding bills that have to be passed before Dec. 11 to keep the government open.
