• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

Links provided by Fidelity Brokerage Services

fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Published by Fidelity Interactive Content Services

Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.

As Yellen makes Fed debut, expect theater, not fireworks

  • By Jonathan Spicer,
  • Reuters
  • – 02/09/2014
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

Janet Yellen's first test as chair of the Federal Reserve comes on Tuesday when she faces U.S. lawmakers, some hostile to the central bank, who will want to know how committed she is to winding down the Fed's support for the economy.

With the world's financial markets watching, Yellen, who succeeded Ben Bernanke last week, will have a chance to set a mostly upbeat tone and point to signs of steady economic progress, despite some recent bumps in the road.

The Fed has embarked on perhaps its most difficult policy shift after five years of ultra-easy money. It has begun scaling back its bond-buying stimulus, but at a measured pace that could frustrate some Republicans who think the program is reckless.

Those concerns will be aired on Tuesday, when Yellen appears before the Republican-controlled House Financial Services Committee to testify on the Fed's semiannual monetary policy report. Her testimony will be released at 8:30 a.m., although the hearing does not begin until 10 a.m.

She testifies to the Democrat-controlled Senate Banking Committee on Thursday.

The Fed has trimmed its asset purchases twice since December, encouraged by momentum in the economy late last year. But two months of weak U.S. jobs growth, a slump in manufacturing and a recent selloff in emerging markets now complicate things for the new Fed chief.

Yellen, the former Fed vice chair who is the first woman to run the central bank in its 100-year history, is expected to calmly point to a longer-term trend toward improvement in the labor market and to low but stable inflation as reasons for cautious optimism and for steady reductions in the stimulus.

Long concerned with the pain the 2007-2009 recession caused for American workers, she will also probably stress that near-zero interest rates will not be raised any time soon.

"I don't think there's anything she's not going to be ready for," said Paul Ashworth, chief North American economist at research firm Capital Economics.

"These are sometimes political theater," he added. "It's a mid-term election year ... so you are going to get some grandstanding from both sides."

Republicans vs Fed

Underlining Republican unease with the Fed's aggressive response to the financial crisis and recession, the House panel invited witnesses to react to Yellen's testimony immediately afterward. Three of the four are critics of the bond-buying program, including Stanford University's John Taylor.

Conservatives worry the years of near-zero interest rates and trillions of dollars in money-printing risk weakening the U.S. dollar, while setting the stage for asset price bubbles and an explosion in inflation.

Jeb Hensarling, chairman of the House committee, has been holding hearings on the asset purchases, which are currently running at $65 billion per month. In the Senate, fellow Republican Rand Paul wants to establish audits of the Fed's policy deliberations — a notion Bernanke and others have slammed as a threat to central bank independence from politics.

Committee Republicans said they want Yellen to give details on how she will balance the Fed's responsibilities to keep inflation in check while pushing for full employment.

"I'm sure she'll be hearing questions on the lack of effective monetary policy and the impact going forward," said Rep. Scott Garrett, the Republican chairman of the Financial Services' capital markets subcommittee.

Another Republican panel member, Rep. Shelley Moore Capito, said Yellen must do more to help senior citizens build safe investment returns. "No one can create any wealth with interest rates squashed as they are," she said.

Parsing her words

For all the criticism, most economists blame Congress for slowing the U.S. recovery from recession with cuts to government spending, tax increases and a series of budget battles that tested investors' confidence in the United States.

Frustrated with the recovery, the Fed has launched three rounds of asset purchases, swelling its balance sheet to more than $4 trillion. If the labor market doesn't stumble badly and inflation doesn't weaken, the Fed aims to shelve the purchases by year end and will likely raise rates sometime next year.

The trick for Yellen will be clearly articulating this on live television in a pressure-filled question-and-answer session that is likely to cover anything from Wall Street regulation to fiscal policy and the gold standard.

Markets will be keenly attuned after a few weeks of high volatility sparked by drops in emerging-market currencies, and after a decidedly mixed batch of U.S. data that has raised questions over the economy's strength.

"We'll all be trying to get a sense of how the Fed is reading recent developments," said Carl Tannenbaum, chief economist at Chicago-based Northern Trust. "We have had some news that while it is almost certainly affected by the weather, it has not been robust."

While it is her first public appearance since a Senate nomination hearing in November, Yellen's style is well known on Wall Street after more than three years as the central bank's No. 2 official and six years running the San Francisco Fed.

In November, she made plain that aggressive efforts to spur growth and hiring remained important. This week, she will probably try to again stick to the script ahead of chairing her first Fed policy-setting meeting on March 18-19.

Capito said that while she would like Yellen to give more specific answers to questions than her predecessor did, the new chair will likely be spared the contentious jabs Bernanke took from committee Republicans.

"She will be treated respectfully," Capito said. "I don't think there will be a lot of fireworks."

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
© Reuters 2014. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.